SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant / X /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ X / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule
14a-12
Sears, Roebuck and Co.
(Name of Registrant as Specified in Its Charter)
Michael D. Levin, Esq.
Senior Vice President, General Counsel and Secretary
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ X / $125 per Exchange Act Rule 0-11(c)(1)(ii),
14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which
transaction applies:
________________________________________________________________
(2) Aggregate number of securities to which transaction
applies:
________________________________________________________________
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 1/:
_________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________
/ / Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identify
the filing for which the offsetting fee was paid
previously. Identify the previous filing by
registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
_______________________________________________________________
(2) Form, schedule or registration statement no.:
________________________________________________________________
(3) Filing party:
_________________________________________________________________
(4) Date filed:
________________________________________________________________
1/ Set forth the amount on which the filing fee is
calculated and state how it was determined.
<PAGE>
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 20, 1996
ARTHUR C. MARTINEZ
Chairman of the Board
Dear Shareholder:
You are cordially invited to attend the Company's 1996 annual meeting on
Thursday, May 9, 1996.
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.
The Board of Directors recommends that shareholders vote FOR proposals 1
through 6 and AGAINST proposal 7.
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,
{signature}
Arthur C. Martinez
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 20, 1996
MICHAEL D. LEVIN
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 9, 1996, at 10:00 a.m., for the following
purposes:
1. to elect 3 directors in Class B for terms expiring at the 1999 annual
meeting of shareholders and one director in Class C for a term
expiring at the 1997 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 1996;
3. to vote on a proposed Non-Employee Director Stock Plan;
4. to vote on approval of the material terms of the performance goals
under the Annual Incentive Compensation Plan;
5. to vote on approval of the material terms of the performance goals
under the Long-Term Incentive Compensation Plan;
6. to vote on a proposed amendment to the Restated Certificate of
Incorporation to delete provisions concerning the Company's Series A
Mandatorily Exchangeable Preferred Shares (``PERCS{trademark}'');
7. to vote on a shareholder proposal, if presented, concerning
de-classifying the Board of Directors; and
8. 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 eliminate references to
the Nominating Committee reviewing and recommending senior officers of
Business Groups, since the Company no longer has Business Groups due to its
recent realignment, and to provide that the Committee shall evaluate the
performance of the Chairman and Chief Executive Officer of the Company. A
summary of the amended By-Law is set forth on page 6 of the enclosed proxy
statement. The text of Article III is attached in Appendix A.
By Order of the Board of Directors,
{signature}
Michael D. Levin
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 20, 1996
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 9, 1996. Only
shareholders of record at the close of business on March 20, 1996 are
entitled to notice of and to vote at the meeting. There were 392,555,594
common shares outstanding and entitled to vote on that date.
The Company is mailing its annual report for the year ended December 30,
1995 together with this proxy statement and the enclosed proxy commencing
approximately on March 25, 1996, to shareholders entitled to vote at the
annual meeting.
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 B and Class C on pages
2 and 3, for the proposals set forth in Items 2, 3, 4, 5 and 6, and against
the proposal set forth in Item 7 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. In
addition, the enclosed proxy 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., P.O. Box 1150,
Pittsburgh, PA 15230-9954. You may also revoke your proxy by voting at the
meeting. 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, to direct voting of the shares in which they have
beneficial interest.
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 (``SEC'') 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, 4, 5 and 7 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. Approval of Items 3 and 6 requires the
affirmative vote of a majority of the outstanding shares entitled to vote.
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. Abstentions and broker non-votes will
have the same effect as votes against Items 3 and 6. 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 (or
less if they are filling a vacancy) 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 A and C are serving terms expiring
at the annual meeting of shareholders in 1998 and 1997, respectively.
The directors in Class B, whose terms expire at the 1996 annual meeting of
shareholders, are Michael A. Miles, Donald H. Rumsfeld and Dorothy A.
Terrell. William E. LaMothe, also a director in Class B, is not standing
for re-election since he will reach the mandatory retirement age as a
director in October 1996. Richard C. Notebaert has been nominated to serve
in Class C.
Information as to each nominee and as to directors continuing in Classes A
and C follows:
NOMINEES FOR DIRECTOR
Class B: Terms Expiring at 1999
Annual Meeting of Shareholders
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. Mr. Miles is a Special
Limited Partner of Forstmann Little & Co. (a New York investment firm with
interests in electronics, aerospace, publishing and other industries). He
is also a director of The Allstate Corporation, 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.
Member: Executive Committee, Compensation Committee and Nominating
Committee.
Director since 1992. Age 56.
Common shares: owned-3,350.
Deferred common share equivalents: 5,368*.
Donald H. Rumsfeld
Mr. Rumsfeld is currently in private business and serves as Chairman of the
Board of Trustees of the RAND Corporation. He served as Chairman, President
and Chief Executive Officer of General Instrument Corporation (an
electronics company) from October 1990 until August 1993. Mr. Rumsfeld was
senior advisor to William Blair & Co. (an investment banking firm) from
October 1985 until October 1990. From 1977 to 1985, he served as CEO of
G.D. Searle & Co. 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 that period.
Prior to joining Searle, Mr. Rumsfeld served in a variety of U.S.
Government posts from 1957 to 1977, including U.S. Congress, Ambassador to
NATO, White House Chief of Staff and Secretary of Defense.
Chairman: Nominating Committee.
Member: Executive Committee and Compensation Committee
Director since 1977. Age 63.
Common shares: owned-4,700.
Deferred common share equivalents: 14,900*.
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 and Public Issues Committee.
Director since 1995. Age 50.
Common shares: owned-250.
Class C: Term Expiring at 1997
Annual Meeting of Shareholders
Richard C. Notebaert
Chairman of the Board, President and Chief Executive Officer of Ameritech
Corporation (telephone, data and video communications company) since April
1994. Mr. Notebaert served as President and Chief Executive Officer of
Ameritech from January 1994 to April 1994, as President and Chief Operating
Officer from June 1993 to January 1994 and as Vice Chairman from January
1993 to June 1993. He served as President of Ameritech Services, Inc. (a
wholly-owned subsidiary of Ameritech's five state telephone companies) from
June 1992 to January 1993, as President of Ameritech's Indiana Bell
subsidiary from 1989 to 1992 and as President of Ameritech Mobile
Communications, Inc. from 1986 to 1989. Mr. Notebaert is a trustee of
Northwestern University and the Chicago Symphony Orchestra and is a member
of The Chicago Council on Foreign Relations, the Civic Committee of The
Commercial Club of Chicago, The Economic Club of Chicago, The Business
Roundtable, The Council on Competitiveness, The Committee for Economic
Development and The Business Council.
Age 48.
Common shares: owned-0.
DIRECTORS WHOSE TERMS OF
OFFICE CONTINUE
Class C: Terms Expiring at 1997
Annual Meeting of Shareholders
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
and McDonald's Corporation and a Trustee of Rush-Presbyterian St. Luke's
Medical Center.
Member: Audit Committee, Nominating Committee and Public Issues Committee.
Director since 1993. Age 62.
Common shares: owned-1,100.
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: Audit Committee, Compensation Committee and Public Issues
Committee.
Director since 1993. Age 69.
Common shares: owned-1,100.
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: Audit Committee.
Member: Executive Committee and Nominating Committee.
Director since 1986. Age 63.
Common shares: owned-1,700.
Deferred common share equivalents: 23,212*.
Arthur C. Martinez
Chairman of the Board, President and Chief Executive Officer of the Company
since August 1995 and Chairman and Chief Executive Officer of the former
Merchandise Group of the Company from September 1992 until August 1995, Mr.
Martinez previously served as Vice Chairman and a director of Saks Fifth
Avenue from August 1990 to August 1992. Mr. Martinez is a member of the
board of directors of Ameritech Corporation, the Federal Reserve Bank of
Chicago and Northwestern Memorial Hospital and is a trustee of Northwestern
University, the Orchestral Association of the Chicago Symphony Orchestra
and the Art Institute of Chicago. Mr. Martinez serves as chairman of the
National Minority Supplier Development Council, Inc. (NMSDC) and is
Chairman of the Board of Trustees of Polytechnic University.
Member: Executive Committee.
Director since 1995. Age 56.
Common shares: owned-150,658;
subject to option-223,805.
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 is also a director of The Allstate Corporation,
Norrell Corporation, The Wackenhut Corporation, The National Park
Foundation, The Central Africa Foundation-USA and a Trustee of The
Smithsonian's National Museum of the American Indian.
Chairman: Public Issues Committee.
Member: Audit Committee.
Director since 1982. Age 68.
Common shares: owned-1,500.
Clarence B. Rogers, Jr.
Chairman of the Board of Equifax Inc. (information-based administrative
services) since January 1996 and Chairman and Chief Executive Officer of
Equifax Inc. from October 1992 until December 1995. Mr. Rogers was
President and Chief Executive Officer of Equifax Inc. from October 1989
until October 1992. He is also a director of Briggs & Stratton Corporation,
Dean Witter, Discover & Co., Equifax Canada Inc. and Oxford Industries,
Inc.
Chairman: Compensation Committee.
Member: Executive Committee, Nominating Committee and Public Issues
Committee.
Director since 1980. Age 66.
Common shares: owned-4,796.
Deferred common share equivalents: 27,705*.
* 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 29, 1996. No distributions have been made from the fund.
Security Ownership of Directors, Nominees for Director and Executive
Officers:
Sears
Common Shares
Amount and
Nature of
Beneficial
Name Ownership(a)
Hall Adams, Jr. 1,100
Warren L. Batts 1,700
James W. Cozad 1,100
William E. LaMothe 2,200
Arthur C. Martinez 374,463(b)
Michael A. Miles 3,350
Richard C. Notebaert 0
Nancy C. Reynolds 1,500
Clarence B. Rogers, Jr. 4,796
Donald H. Rumsfeld 4,700
Dorothy A. Terrell 250
Paul A. Baffico 29,193(c)
John H. Costello 138,608(d)
Robert L. Mettler 168,121(e)
Jane J. Thompson 40,208(f)
Edward A. Brennan 842,729(g)
James M. Denny 274,815(h)
All directors and Executive
Officers as a group 2,402,083(i)
(a) Direct ownership unless indicated otherwise.
(b) Includes 223,805 shares subject to option.
(c) Includes 22,229 shares subject to option.
(d) Includes 117,453 shares subject to option.
(e) Includes 162,764 shares subject to option.
(f) Includes 31,420 shares subject to option.
(g) Includes 601,693 shares subject to option.
(h) Includes 184,007 shares subject to option.
(i) Includes 1,729,402 shares subject to option.
During 1995, the Company made a late filing of a report required by Section
16(a) of the Securities Exchange Act of 1934, involving the election of Mr.
J. Smialowski as Senior Vice President, Chief Information Officer.
Security Ownership of Certain Beneficial Owners as of December 31, 1995 (a)
Amount and Nature of Percent
Beneficial Ownership: of
Name and Address Sears Common Shares(b) Class
The Northern 26,598,552 shares(c) 6.8%
Trust Company Trust, Employee
of New York benefit plan
80 Broad Street
19th Floor
New York, NY 10004
(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.
(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 7,407,074 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, 1996 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, 1996, 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, 1996, no director had a
beneficial interest in more than .1% of the outstanding Sears common shares
and all directors, nominees for director and Executive Officers together
beneficially owned an aggregate of 2,402,083 Sears common shares (.62% of
the outstanding shares), which included 1,729,402 shares subject to option.
On pages 4 and 5, shares shown as ``subject to option'' are subject to
employee stock options exercisable on or prior to April 1, 1996.
Further Information
Concerning the
Board of Directors
The Board of Directors held 10 meetings during 1995. The committees of the
Board of Directors and the number of meetings held by each such committee
in 1995 were:
Number of
Committee Meetings Held
Name During 1995
Audit Committee 4
Compensation Committee 7
Executive Committee 0
Finance Committee* 4
Intercompany Transactions Committee* 1
Nominating Committee 6
Public Issues Committee 1
* The Finance Committee was dissolved on September 26, 1995. The
Intercompany Transactions Committee was dissolved on August 9, 1995.
The Nominating Committee recommends nominees for election to the Board of
Directors, other committees of the Board and as Executive Officers. 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 11,
1996.
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 as Executive Officers of the Company. The Nominating Committee is
required to annually assess the performance of the Board, evaluate the
performance of the Chairman and Chief Executive Officer of the Company, and
review the management organization of the Company and succession plans for
the Chairman and Chief Executive Officer of the Company, including
consultation with the Chairman of the Board of Directors regarding the
persons considered qualified to fill any vacancy that may occur in the
position of Chairman and Chief Executive Officer. 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., 3333 Beverly Road,
Hoffman Estates, Illinois 60179 for further information.
Directors' Compensation
and Benefits
Revised Director Compensation Provisions
Significant changes have been made to the Board of Directors' compensation
and benefits in order to more clearly align the directors' interests with
those of the shareholders. A portion of non-employee directors' annual cash
compensation is being replaced with equity compensation, subject to
shareholder approval of the Non-Employee Director Stock Plan as more fully
discussed below under Item 3. Fees previously paid to a director for
attending meetings of the Board and its committees, and the retainer paid
to a director for serving on a committee, have been eliminated. In
addition, the Non-Employee Director Retirement Plan has been terminated as
to directors elected after November 8, 1995. The retirement benefit for
current non-employee directors has been frozen at its current level of
$30,000 per year. Directors elected subsequent to November 8, 1995 will
receive no retirement benefits under this plan.
Under the proposed Non-Employee Director Stock Plan, which is subject to
shareholder approval at the 1996 annual meeting of shareholders, directors
will receive an annual equity retainer and a stock option grant. The equity
retainer will consist of deferred shares valued at $30,000, to be granted
on the date of each annual meeting of shareholders. The deferred shares
will be credited to a common share equivalent account for each director,
along with periodic amounts equal to each dividend paid on the Company's
common shares, which will be reinvested in additional deferred shares. Upon
retirement, each director will receive common shares of the Company equal
to the number of vested deferred shares in his or her deferred share
account. Options and deferred shares vest pro rata over the year in which
service was rendered. Also, each year at the annual meeting of
shareholders, each director will receive an option grant valued at
approximately $30,000, with the option exercise price equal to the fair
market value of the underlying common shares on the date of grant. The
options will be fully exercisable one year from the date of grant. The
actual number of deferred shares and option shares granted will depend upon
the price of Sears common shares on the date of grant. The Plan was
approved by the Board on February 6, 1996 and specifies an immediate grant
of approximately 268 deferred shares, and 804 option shares with an
exercise price of $41.32, as initial grants for the period from January 1
through May 9, 1996.
This new focus on equity compensation rather than cash reflects the
Company's efforts to more closely align directors' compensation with total
shareholder return. To further strengthen this alignment, by January 1,
2001 (or within five years of their election, in the case of directors
elected after November 8, 1995), pursuant to Board policy, each
non-employee director is expected to own shares and deferred common share
equivalents with a total market value equal to five times the annual cash
retainer of $30,000.
The Chairmen of the Audit, Compensation and Nominating Committees receive
an additional retainer of $5,000, and the Chairman of the Public Issues
Committee receives an additional retainer of $3,000. Under the Company's
Deferred Compensation Plan for Directors, non-employee directors may elect
to defer some or all of their directors' fees to an account which generates
earnings based on (a) the market value of and dividends on common shares
(``common share equivalents''); (b) the average rate of interest payable on
commercial paper issued by Sears Roebuck Acceptance Corp.; (c) Standard &
Poor's 500 Composite Stock Price Index (with dividends reinvested); or (d)
the Lehman Brothers Aggregate Bond Index. 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.
The Company also provides life insurance in the amount of $150,000 to each
non-employee director. The coverage is received until the end of the
calendar year of retirement as a director, and is reduced by $30,000 at the
beginning of each year thereafter until the coverage is reduced to zero.
Terminated Compensation Provisions
As noted above, prior to November 8, 1995, in addition to the $30,000
annual retainer, non-employee directors received $1,100 for each meeting
attended of the Board and each committee of which the director was a member
or which the director was requested to attend; members of the Audit,
Compensation, Finance and Nominating Committees were paid an annual
retainer of $2,000; and members of the Public Issues Committee received an
annual retainer of $1,200. In addition, each year, a non-employee director
received 100 common shares for a full year of service ending on the date of
each annual meeting of shareholders, accompanied by a cash payment to
offset the increase in the director's federal, state and local tax
liabilities (assuming the maximum prevailing individual tax rates)
resulting from the grant of shares. The plan under which the 100 share
grants were made was terminated by the Board effective as of January 1,
1996, and no further grants will be made.
Executive Compensation
The following Summary Compensation Table shows compensation information for
the current CEO (Mr. Martinez) and the four other Executive Officers most
highly compensated in 1995, and Mr. Brennan, former Chairman and CEO and
Mr. Denny, former Vice Chairman, both of whom retired in August 1995 (the
``Named Officers''). Executive Officers are designated by the Board of
Directors.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Other
Annual Restricted Securities All
Name and Compensa- Stock Underlying LTIP Other
Principal Year Salary Bonus tion Awards Options/ Payouts Comp.
Position (a) ($) ($) ($)(b) ($)(c) SARs(#)(d) ($)(e) ($)(f)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur C.
Martinez 1995 1,023,915 1,005,980 166,825 - 222,134 3,033,583 6,468
Chairman &
CEO 1994 931,250 1,119,496 29,376 - - - 6,468
1993 900,000 1,102,500 83,038 - 195,132 - 345,984
Paul A. Baffico 1995 370,000 411,033 46,522 - 88,903 1,024,187 6,468
President-
Automotive
Group
John H.
Costello 1995 485,000 408,273 55,559 - 80,595 1,280,340 6,468
Senior
Executive Vice
President-
Gen. Mgr.
Marketing
Robert L.
Mettler 1995 660,000 277,794 1,202 - 98,154 1,875,281 6,468
President-
Apparel/Home
Fashions
Jane J.
Thompson 1995 375,000 416,588 27,433 - 89,164 1,029,426 6,468
President-
Home Services
Edward A.
Brennan 1995 760,870 1,325,625 1,011,862 - 339,396(g)3,567,068 4,873,098(h)
Former Chairman
& CEO 1994 1,150,000 483,805 24,000 - - - 6,468
1993 1,025,000 2,050,000 20,252 500,250 421,405(g) 0 6,296
James M. Denny 1995 458,044 741,025 169,395 - 98,972 1,859,644 2,784,175(h)
Former Vice
Chairman 1994 700,000 273,455 - - - - 6,468
1993 650,000 739,375 - 345,000 255,095 0 6,296
</TABLE>
(a) Messrs Baffico, Costello, Mettler and Ms. Thompson were not executive
officers of the Company during the years 1993 and 1994, and,
accordingly no information is given with respect to their compensation
for those years.
(b) Represents certain tax gross-up payments, tax benefit rights payments
or a portion of interest on deferred compensation.
(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. While no grants were made in 1995, on
December 29, 1995 the above executives held the following shares of
restricted stock valued at a year-end fair market value for Sears
common shares of $39.00 per share:
# of Shares Market Value on 12/29/95
Mr. Martinez 81,697 $3,186,183
Mr. Baffico 4,632 $ 180,648
Mr. Costello 12,362 $ 482,118
Mr. Mettler 0 $ -
Ms. Thompson 7,425 $ 289,575
Mr. Brennan 0 $ -
Mr. Denny 0 $ -
(d) Options and restricted shares outstanding were adjusted to account for
the dilutive effect of the spin-off of The Allstate Corporation by the
Company on June 30, 1995 (the ``Allstate spin-off'').
(e) Long-Term Incentive awards were paid in March 1996. These awards were
earned under the 1993-1995 Long-Term Incentive and the 1995 Long-Term
Incentive Transition Cycles, both of which ended on December 31, 1995.
Each executive earned a portion of total payout in 1993, 1994, and
1995 as follows:
1993 1994 1995
Mr. Martinez $ 809,101 $1,116,795 $1,107,687
Mr. Baffico 324,001 360,482 339,704
Mr. Costello 357,052 473,906 449,382
Mr. Mettler 631,875 631,875 611,531
Ms. Thompson 338,903 346,555 343,968
Mr. Brennan 1,118,254 1,254,627 1,194,187
Mr. Denny 601,692 647,976 609,976
(f) These amounts represent the Company's matching contribution under the
Profit Sharing Fund, a qualified defined contribution plan, and under
the Company's nonqualified Management Supplemental Deferred Profit
Sharing Plan. For Mr. Martinez, this amount also includes $69,688 in
reimbursements for relocation expenses and a partial incentive payment
under his employment contract of $270,000 for 1993.
(g) Includes shares resulting from the exercise of options by tendering
161,251 and 69,538 shares in 1995 and 1993, respectively, for Mr.
Brennan (see the Option Grant Table for a description of this
feature).
(h) In addition to the Company's matching contribution under the qualified
and nonqualified Profit Sharing plans of $6,468, this amount includes
total cash severance of $4,866,630 and $2,777,707 respectively, for
Messrs. Brennan and Denny. See page 12.
Stock Options
The following table is a summary of all stock options granted during 1995.
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 1995
<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 1995 Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez 51,965 1.73% $23.36 01/31/07 $966,092 $2,595,844
163,500 5.44% $31.82 06/29/07 $4,140,499 $11,125,323
6,669 0.22% $32.75 07/31/07 $173,823 $467,054
Paul A. Baffico 19,003 0.63% $23.36 01/31/07 $353,289 $949,270
69,900 2.33% $31.82 06/29/07 $1,770,158 $4,756,331
John H. Costello 24,495 0.81% $23.36 01/31/07 $455,391 $1,223,616
56,100 1.87% $31.82 06/29/07 $1,420,685 $3,817,313
Robert L. Mettler 28,254 0.94% $23.36 01/31/07 $525,276 $1,411,392
69,900 2.33% $31.82 06/29/07 $1,770,158 $4,756,331
Jane J. Thompson 19,264 0.64% $23.36 01/31/07 $358,141 $962,308
69,900 2.33% $31.82 06/29/07 $1,770,158 $4,756,331
Edward A. Brennan 178,145 5.93% $23.36 08/09/00 $3,311,929 $8,899,000
161,251(b) 5.36% $27.28 08/09/97 $2,766,462 $7,010,756
James M. Denny 98,972 3.29% $23.36 08/09/00 $1,840,008 $4,944,017
</TABLE>
(a) All options become exercisable in three equal annual installments. All
options were granted with an exercise price equal to the average fair
market value of a common share on the date of grant. All grants to
officers include tax withholding rights and a feature which permits
payment of the exercise price by tendering Sears common shares, which
in turn gives the optionee the right to purchase the same number of
shares tendered, at a price equal to the fair market value on the
exercise date. Tax withholding rights permit the optionee to elect to
have shares withheld to satisfy federal, state and local tax
withholding requirements. The above grants do not include stock
appreciation rights or tax benefit rights but do include limited stock
appreciation rights which become exercisable in certain cases upon a
change in control.
(b) Represents an option granted to replace the shares tendered to the
Company by the officer, in lieu of cash, to purchase shares upon
exercise of the original option.
The following table shows options that were exercised during 1995 and the
number of shares and the value of grants outstanding as of December 29,
1995 for each Named Officer.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 1995 AND 12/29/95 OPTION/SAR VALUES
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-The-Money Options/SARs
Shares Options/SARs at 12/29/95(a) at 12/29/95(b)
Acquired on Value Exercisable Unexercisable Exercisable Unexercisable
Name Exercise(#) Realized($) (# of Shares) (# of Shares) ($ value) ($ value)
<S> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez - - 154,471 681,749 2,911,081 12,311,151
Paul A. Baffico 30,783 522,535 0 111,937 0 1,244,112
John H. Costello - - 72,858 117,025 1,332,573 1,447,369
Robert L. Mettler - - 102,230 254,489 1,966,905 3,945,771
Jane J. Thompson 22,626 377,028 7,372 112,978 134,318 1,265,732
Edward A. Brennan 218,178(c) 4,818,235 1,207,112 0 26,198,129 0
James M. Denny 191,612(c) 4,102,209 184,007 0 3,255,439 0
</TABLE>
(a) In 1992, the Company requested that its employees agree to the
cancellation of outstanding SARs. The Company offered to Messrs.
Brennan and Denny, and such officers accepted, $.10 per share which
will be received upon future exercise of the options and which may
vary, depending on market conditions, in return for the cancellation
of each associated SAR, and agreed to reimburse them for additional
income taxes resulting from the $.10 payment. No other Executive
Officers had SARs.
(b) Value of unexercised, in-the-money options based on a fair market
value of a Sears common share of $39.00, as of December 29, 1995.
(c) Shares were exercised prior to the Allstate spin-off and have not been
adjusted in the same manner as the 1993 grants listed in the table on
page 8.
Long-Term Incentive
Compensation Plan
Contained in the Summary Compensation Table on page 8 are payouts for the
long-term incentive performance cycles that ended on December 31, 1995.
Included in those amounts are payouts related to grants awarded at the
beginning of 1995 as a transition performance cycle. Under the current
design of the Long-Term Incentive Program, a new three-year performance
cycle was scheduled to begin in 1995. However, as a result of modifications
being made to the measurement criteria, the new cycle was postponed until
1996. Instead, a one-year transition cycle was implemented. Actual cash
awards were paid in March 1996 based on actual financial performance
results for the one-year period and are reflected in the table on page 8.
<TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN 1995 (paid in 1996)
<CAPTION>
Number
of Shares, Performance
Units or or Other
Other Period Until Possible Future Payouts
Rights Maturation Under Non-Stock Price-Based Plans(b) Actual
Name (#)(a)(c) or Payout Threshold($) Target($) Maximum($) Payout
<S> <C> <C> <C> <C> <C> <C>
Arthur C.
Martinez $385,634 1/1/95-12/31/95 $96,408 $385,634 $674,859 $493,610
Paul A.
Baffico $115,625 1/1/95-12/31/95 $28,906 $115,625 $202,344 $148,000
John H.
Costello $151,563 1/1/95-12/31/95 $37,891 $151,563 $265,234 $193,999
Robert L.
Mettler $206,250 1/1/95-12/31/95 $51,563 $206,250 $360,938 $264,000
Jane J.
Thompson $117,188 1/1/95-12/31/95 $29,297 $117,188 $205,078 $150,001
Edward A.
Brennan $412,500 1/1/95-12/31/95 $103,125 $412,500 $721,875 $512,324
James M.
Denny $210,700 1/1/95-12/31/95 $52,675 $210,700 $368,725 $261,689
</TABLE>
(a) Awards represent a cash incentive.
(b) Target awards are set for participants at the beginning of each cycle
based on a percentage of estimated aggregate salary during the
performance cycle. Actual awards are based on the individuals' actual
salary earned during the cycle. In years in which performance cycles
overlap, participants' salaries are applied 50% to each cycle. If
threshold level performance of 80% of the performance goal were
achieved, the award would be 25% of the individual's target award. If
maximum level of performance of 120% of the performance goal, or
greater, were achieved the award would be 175% of the individual's
target award. Performance for the 1995 Transition Cycle is measured
based on net income.
(c) Actual payouts for the above target awards were made in March 1996 and
are included in the amounts shown under the LTIP Payouts column in the
table on page 8.
Pension Plan Table
Years of Service
Remuneration 5 15 25 35 40
$ 750,000 55,400 174,700 296,000 424,900 456,700
$1,200,000 89,200 281,500 477,200 684,900 735,900
$1,650,000 122,900 388,000 657,800 944,200 1,014,300
$2,100,000 156,700 494,600 838,700 1,203,900 1,293,000
$2,550,000 190,400 601,300 1,019,600 1,463,500 1,571,800
The Company maintains 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, 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 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''). In 1995, the Company
amended the pension benefit accrual formula in a manner which will reduce
certain future benefits. Pension benefits for service rendered on and after
January 1, 2000 will be credited for each full or partial year of service
based on the individual's cash compensation for that period which will
result in a total benefit based on historical career compensation over the
portion of an employee's career that begins on that date, rather than the
highest 5 years' earnings out of the final 10 years prior to retirement. In
general, only annual salary and annual bonus amounts such as reflected in
the Summary Compensation Table on page 8 are considered in determining
pension benefits. In addition to reducing future pension benefits, the
Company also amended the retiree medical plan to reduce future Company
contributions. Pursuant to their severance arrangements, Messrs. Brennan
and Denny's pension benefits will be determined including any severance
amounts paid in lieu of salary and target annual bonus (see ``Employment
Contracts, Termination and Change of Control Arrangements'' below). 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 on the previous page 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, 1996 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, 1995: Martinez (13), Baffico (29),
Costello (2), Mettler (3), Thompson (7), Brennan (38) and Denny (14).
Pursuant to their employment agreements with the Company Messrs. Martinez,
Mettler and Costello are entitled to specified retirement benefits (see
``Employment Contracts, Termination of Employment and Change in Control
Arrangements'' below).
Employment Contracts,
Termination of Employment
and Change in Control
Arrangements
Employment Contracts
Pursuant to his employment agreement with the Company which, as extended by
the Company, terminated on December 31, 1995, Mr. Martinez was granted a
stock option on September 1, 1992 relating to 150,000 shares (adjusted to
394,569 shares due to the Dean Witter and Allstate spin-offs) which vests
on August 31, 1997 at an exercise price of $41.63 (adjusted to $15.82 due
to the Dean Witter and Allstate spin-offs) per share which is forfeited if
he resigns or his employment is terminated for cause prior to vesting. If
his employment is terminated other than for cause, the option will vest
immediately. If Mr. Martinez dies or becomes disabled, a prorated portion
of the shares will become exercisable. Mr. Martinez will receive retirement
benefits equal to those to which he would be entitled 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. Prior to his
contract being amended in November 1995, he was 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 amendment to his contract eliminated the $195,000 per year
annuity and replaced it with an aggregate pension benefit determined as
though he had accrued an additional ten years of credited service. 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, his estimated annual retirement benefits under the
Company's basic and supplemental plans would be $634,462.
Pursuant to his employment agreement with the Company that terminated on
February 14, 1996, Mr. Mettler was granted a stock option on February 15,
1993 relating to 40,000 shares (adjusted to 105,219 shares due to the Dean
Witter and Allstate spin-offs) which vests on February 14, 1998 at an
exercise price of $51.82 (adjusted to $19.70 due to the Dean Witter and
Allstate spin-offs) per share. If Mr. Mettler resigns or his employment is
terminated for cause any unvested shares are forfeited but they shall
automatically vest, on a pro rata basis, if his employment is terminated
for any other reason.
Mr. Mettler is entitled to an additional past-service pension benefit equal
to the excess aggregate pension benefit determined as though he had accrued
an additional six years of service, over the aggregate benefit actually
received. This additional benefit vests 50% if employed continuously until
February 14, 1998 and an additional 10% each year thereafter until the
vesting percentage reaches 100%. If he is terminated other than for cause
the additional benefit vests 10% for each year beginning February 14, 1994
through February 14, 1997. Mr. Mettler forfeits his benefit if his
employment is terminated for cause or voluntarily prior to February 14,
1998. He is also entitled to a minimum benefit after ten years of service
payable monthly in the form of a single life annuity commencing on the date
he attains age 65 or retires, whichever is later. The monthly benefit will
be equal to one-twelfth of the excess of $125,000 over the aggregate annual
pension benefit and is pro-rated in the event Mr. Mettler's employment is
terminated other than for cause prior to February 14, 2003.
Pursuant to his employment agreement with the Company that will terminate
on March 31, 1996, Mr. Costello received a payment of $100,000 and 14,100
restricted shares (adjusted to 24,852 shares due to the Dean Witter and
Allstate spin-offs) which vest in three annual installments beginning on
April 1, 1994. He also received a stock option grant relating to 41,547
shares (adjusted to 109,288 shares due to the Dean Witter and Allstate
spin-offs) which vests in three annual installments beginning on April 1,
1994 at an exercise price of $54.32 (adjusted to $20.65 due to the Dean
Witter and Allstate spin-offs) per share. If Mr. Costello resigns or his
employment is terminated for cause any unvested option installments and
restricted shares are forfeited but, if his employment is terminated for
any other reason, any restricted shares vest immediately, on a pro rata
basis.
Mr. Costello's employment agreement provides for a minimum annual base
salary and bonuses. The actual amounts of his salary and bonus for 1995 are
set forth in the table on page 8.
If Mr. Costello remains in the employ of the Company through March 31,
1998, he will be credited with an additional ten years of service under the
Company's pension plans. If his employment is terminated for cause or
voluntarily prior to March 31, 1998, the entire additional benefit will be
forfeited. If his employment terminates for any other reason prior to March
31, 1998, 20% of the additional benefit will vest in annual installments on
the 31st of March 1994, 1995, 1996 and 1997.
If Mr. Costello's employment is terminated by the Company other than for
cause, he will receive his annual base salary as if he had remained
employed by the Company for the term of the agreement.
Termination of Employment Arrangements
Mr. Edward A. Brennan, former Chairman and CEO, and Mr. James M. Denny,
former Vice Chairman, retired as officers of the Company effective August
9, 1995. In recognition of their special achievements and dedicated service
to the Company, on August 9, 1995, the Company entered into agreements with
Messrs. Brennan and Denny, providing them with certain retirement benefits.
The Company agreed to pay an amount equal to the annual incentive bonus and
to the long-term incentive bonus for the 1993-1995 cycle to which they
would have been entitled if they had been employed by the Company on
December 31, 1995. In addition, lump-sum severance payments of $4,866,630
and $2,777,707 were made to Mr. Brennan and Mr. Denny, respectively. The
payments were calculated based on 1) the amount of base salary they would
have received through December 31, 1995 and 2) approximately two times the
sum of annual base salary at the rate in effect for each immediately prior
to retirement plus target annual incentive. The benefits under the
Company's supplemental retirement plan were calculated based on actual
service plus an additional two years and four months, plus, in Mr. Denny's
case, an additional 5 years previously credited to him. The calculation for
Mr. Denny was also based on his actual age at January 1, 1996 plus an
additional three years previously credited to him. In January, 1996 these
additional benefits were paid in lump sums of $3,738,737, and $1,191,731 to
Mr. Brennan and Mr. Denny, respectively. Effective August 17, 1995, the
Company also agreed to fully vest 59,915 and 22,554 restricted shares and
479,867 and 184,005 shares subject to stock options previously granted
under the Company's employee stock plans to Mr. Brennan and Mr. Denny,
respectively. Mr. Brennan will also receive a furnished office and
secretarial support for up to ten years and will receive fees for services
from a financial planner and tax advisor for five years consistent with
Company policy.
Certain Stock Option Provisions
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.
Report of the Compensation Committee
As Sears aggressively continues the transformation process begun over the
past few years, the focus of that effort remains squarely on creating
superior total shareholder return. The committee has established a charter
and compensation philosophy designed to reward and support superior
performance.
(bullet) At-Risk Performance-Based Pay
Executives and managers at all levels will have more pay
delivered through variable pay plans. Those plans require
achievement of performance targets which are established to
create stock price appreciation. Increases in base salary will be
slowed to lag the market, while at-risk incentive plans will be
increased as a percentage of total compensation.
(bullet) Shareholder Alignment
Pay for executives should place their interests squarely in line
with shareholder interests. We will deliver more pay to
executives in the form of Sears stock, and less in cash, while
retaining an emphasis on performance-based payout formulas. It is
imperative that our executives and managers think and act like
owners. When our shareowners are rewarded, our executives and
managers should share in those rewards. If our shareowners do not
realize appreciation in their investment in Sears, our executives
should receive limited rewards.
(bullet) Customer Focused
As a retailer, our pay practices at all levels must emphasize the
primacy of our core customer. What she requires from Sears - both
products and services - must be reinforced by how much and how we
deliver pay to our associates. Our executives and managers should
have pay at risk based on our customer's assessment of how well
we are meeting her needs.
(bullet) Management Development
Our pay practices must attract and retain the caliber of talent
necessary to meet the current and future leadership needs of our
company. Our pay practices must clearly signal to all our
associates that we view them, their talents and their ideas as
assets to be invested in, rather than costs to be minimized.
They, however, must be capable of achieving performance goals
while simultaneously introducing innovative ideas. Our pay
practices must attract achievement oriented associates who
demonstrate individual and team commitment to superior
performance and improved shareholder value.
The Compensation Committee (the ``Committee''), composed of independent,
non-employee directors establishes with approval by the Board of Directors
(the ``Board''), executive compensation philosophy and administers the
compensation programs for Executive Officers (``Officers'') and the terms
and conditions of the employment for these Officers. In addition, the
committee oversees benefit plans covering all associates, referring changes
in these plans to the Board. The Committee uses the advisory services of
independent compensation and benefits consultants in meeting its
responsibilities.
To support the objectives stated above, the Committee has approved a number
of changes in compensation programs over the past year. These include:
(bullet) Adopting share ownership guidelines which apply to the members of
the Board as well as to executive associates.
(bullet) Increasing the portion of Sears options delivered in the mix of
total compensation.
(bullet) Increasing the risk and reward potential in incentive plans by
limiting payouts for less aggressive performance and increasing
the payout for extraordinary performance.
(bullet) Introducing a ``Total Performance Index'' measurement into the
Long-Term Incentive Performance Plan, which focuses management
both on leading indicators of success, such as customer
satisfaction, as well as financial results. These measures
support the Company's strategy of making Sears a Compelling Place
to Shop, Work and Invest.
(bullet) Establishing a High Total Shareholder Return (``High-TSR'')
comparison group for benchmarking compensation practices and
levels and ensuring that Total Compensation Opportunity is
targeted toward top quartile operating performance.
Additional changes are anticipated for the future to further enhance the
relationship between compensation and the ongoing business transformation.
Companies chosen to determine the competitiveness of Sears executive
compensation programs are selected based on one or more of the following
criteria; total shareholder return performance, similarities in their
primary line of business and companies that are undergoing a similar
transformation process. This includes firms that compete in the Company's
primary lines of business, as well as those with which the Committee
believes the company competes for investor capital and 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.
Although some companies are in both groups, the compensation peer group is
not identical to the companies included in the peer group indices used for
the Performance Graph on page 18.
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 his or her assigned responsibilities,
as well as competitive salary practices. Base salaries for 1995 were
targeted at the median competitive level. However, increases in base
salaries will be held to below market levels as the annual incentive
opportunity is increased, as described in the Annual Incentive section
below, to provide a greater proportion of annual cash compensation at risk.
Annual Incentive
In 1995, annual incentives were designed to provide median level rewards
for achieving a targeted level of improvement in net income results over
the prior year. The targeted level of improvement is approved by the
Committee and the Board prior to the beginning of each year. For those
participants in corporate positions, the entire award was based on company
net income. For those in business units, one-half of the formula award was
earned based on Company net income, with the remainder based on business
unit net income results. Target award levels were assigned for each Officer
based on competitive practice. Actual awards could have ranged from 25% to
230% of target based on actual performance. After the formula award has
been determined based on performance, the participant receives 80% of the
formula award. The remaining 20% is received only if the individual has
successfully accomplished the personal objectives that each participant
established at the beginning of the year. Any awards to Officers over 200%
of target are paid in restricted Sears common shares. Beginning in 1996,
the Committee has approved moving the award target levels from the median
to the 75th percentile of the peer group by 1998 to increase the potential
reward for achieving top quartile performance but will hold back base
salary increases to below market levels. Also beginning in 1996, Officers
may elect to receive all, or a portion of, their incentive award in the
form of restricted stock which fully vests at the end of three years. For
any portion received in restricted shares they will receive a 20% premium
above what the cash award would have been.
Long-Term Incentives
The Long-Term Incentive Program consists of a performance plan and stock
options. The program is designed to enhance the mutual commitment between
Officers and Sears by providing financial rewards directly tied to the
long-term success of the company. Award levels under these plans are
targeted at the competitive median of the above-described peer group for
performance at planned results.
Performance Plan
Officers participating in this plan receive cash distributions based on a
targeted percentage of base salary over three-year performance cycles that
begin every other year. Amounts awarded under the 1993-1995 performance
cycle were based 50% on Company net income results and 50% on company
return on equity performance against goals established at the beginning of
the cycle. Performance for this cycle was nearly 20% above the goal for
each measure, which resulted in each participant earning an award slightly
under the maximum award level of 175% of target award.
The performance cycle normally scheduled to begin in 1995 was postponed
until 1996 due to the implementation of a strategic performance measurement
system involving a Total Performance Index. For the 1995 portion of that
cycle, the Committee approved a Company net income goal before the
beginning of the year. Performance for this transition cycle warranted a
payout slightly above target.
For the period 1996-1997, the Committee established goals for measures
relating to Sears becoming a Compelling Place to Shop, Work and Invest.
Actual awards may range from 50% to 150% of target based on actual
performance. These goals will be used to determine award levels for the
1996-1997 cycle. The Company intends to return to its normal three-year
performance cycle beginning in 1997. Beginning with this next cycle,
Officers may elect to receive all, or a portion of, their incentive award
in the form of restricted stock which fully vests at the end of three
years. For any portion received in restricted shares they will receive a
20% premium above what the cash award would have been.
Stock Options
Stock options have been an integral part of the executive compensation
program for many years. Options are granted with an exercise price equal to
the market price on the date of the grant, vest over a period of three
years, and for grants prior to 1996, expire after twelve years. Beginning
in 1996, the Company changed to an annual grant practice from biennial
grants and from twelve year expiration to ten year. In February 1995, each
participant received a pro-rated annual grant based on the competitive
award target.
In July 1995, the Committee approved a special stock option grant
associated with the Allstate spin-off. This grant was made in lieu of the
February 1996 grant at levels that were double normally competitive
guidelines. The purpose of the grant was to provide an additional incentive
to the newly-appointed executive team leading the Company into the era of
the new Sears.
Stock Ownership Guidelines
In keeping with Sears philosophy of developing a mutual commitment between
shareholders and management, the Committee recently approved stock
ownership guidelines for approximately 200 members of the management team.
The target levels of ownership range from five times base salary for the
CEO to three times base salary for members of the Company's Executive
Committee, composed of the most senior officers, and one times base salary
for the remainder. Individuals affected by these guidelines have been given
a period of five years to acquire sufficient shares to meet these
guidelines.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code limits the Company's tax
deduction to $1 million for compensation paid to the first five Officers
listed on page 8, unless certain requirements are met. One of these
requirements is that compensation over $1 million must be
performance-based. The Committee intends to continue to use
performance-based compensation, which should minimize the effect of these
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 IRS regulations. Since Mr. Martinez's salary exceeds $1
million, he has agreed to defer a portion of his 1995 base salary until
after retirement.
CEO Compensation
The Chief Executive Officer's salary, annual incentive, stock options and
long-term performance plan grants follow the policies and provisions
described above. Amounts paid and granted under these plans are disclosed
in the Summary Compensation Table on page 8.
Mr. Martinez's annualized base salary was increased by 12.8% from $975,000
to $1,100,000 on August 8, 1995. In determining this increase, the
Committee considered his promotion to Chairman and CEO of the Company
subsequent to the spin-off of Allstate, as well as his significant impact
in transforming the Company and the dramatic improvement in financial and
non-financial results due to his efforts. No specific weight was assigned
to any of these factors in determining the amount of the increase.
Mr. Martinez's 1995 annual incentive award was based on a pre-approved
target level of improvement in net income results over the prior year, as
described above under Annual Incentive. Actual results achieved were above
the target level but less than the maximum. There was no discretionary
adjustment made to his award.
In 1995, Mr. Martinez received the following separate grants of stock
options: (i) a Long-Term Incentive Program grant representing the 1995
Transition Cycle grant targeted at the median competitive level, (ii) a
grant that combined a special grant intended to provide an incentive to new
management following the spin-off of Allstate as Sears emerged as a pure
retailer, and the Long-Term Incentive Program grant that would have been
made in February, 1996, and (iii) a grant intended to raise his total
shares subject to option to a level more commensurate with his new
position. Details of these grants are disclosed in the Option/SAR Grants in
1995 Table on page 9.
In August 1995, Mr. Brennan retired as Chairman and CEO of the Company
after 38 years of service. Payments he has received as a result of his
retirement are described on pages 12 and 13. In determining these amounts
the Committee took into account Mr. Brennan's leadership in the major
repositioning of the Company through the spin-offs of Allstate and Dean
Witter and the sales of Coldwell Banker and Homart, management succession
planning, and the resulting substantial increase in value for all
shareholders.
Conclusion
The Compensation Committee believes that the design and administration of
Sears executive compensation programs align the interests of the
shareholders of the Company and the Executive Officers. These programs
clearly support the transformation efforts which are underway, and provide
competitive compensation opportunities that are realized based on results.
Sears intends to continue to emphasize performance-based compensation
programs that it believes will contribute to making Sears a Compelling
Place to Shop, Work and Invest.
COMPENSATION COMMITTEE:
Clarence B. Rogers, Jr. Michael A. Miles
(Chairman) Donald H. Rumsfeld
James W. Cozad
William E. LaMothe
Performance Graph
The following graph compares the performance of Sears common shares with
that of the S&P 500 Index and S&P Retail Store Composite Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
December 1990 through December 1995
Sears vs. Published and Composite Indices
[5 Year Total Graph]
1990 1991 1992 1993 1994 1995
Sears $100 $158 $198 $310 $278 $473
S&P 500 $100 $130 $140 $154 $156 $215
S&P Retail $100 $158 $185 $178 $163 $182
* Assumes $100 invested on the last day of December 1990. Dividends are
reinvested at the frequency with which they are paid. The Company's
interests in Dean Witter, Discover & Co. and The Allstate Corporation were
distributed to shareholders as special dividends payable, respectively, on
June 30, 1993 and June 30, 1995. The above graph accounts for this
distribution as though it were paid in cash and reinvested in common shares
of the Company.
Item 2: Approval of Auditors
Item 2 is the recommendation of the Audit Committee that Deloitte & Touche
LLP be appointed auditors for 1996, 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 1996, AS PROPOSED IN ITEM 2.
Compensation Committee
Interlocks and Insider
Participation
During 1995, 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. and Donald H. Rumsfeld. There
were no interlocks with other companies within the meaning of the SEC's
proxy rules during 1995.
Item 3: Proposal to Adopt and
Approve Sears Non-Employee
Director Stock Plan
To replace terminated compensation and benefits as described above under
``Directors' Compensation and Benefits'', the Board of Directors has
adopted the Sears Non-Employee Director Stock Plan (the ``Plan''), subject
to shareholder approval. The Plan provides for annual grants, to each
non-employee director, of stock options valued at $30,000. The Plan also
provides for annual grants, to each non-employee director, of ``deferred
shares,'' which are unfunded general obligations of the Company that, upon
termination of service as a director, are exchangeable for common shares,
par value $.75 per share, of the Company (``shares''). The number of
deferred shares granted to each non-employee director each year is equal to
shares having a fair market value of $30,000. Directors holding deferred
shares will be credited with dividend equivalents, but will have no voting
rights.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS ADOPT AND APPROVE
THE PLAN. THE PLAN IS DESCRIBED BELOW, BUT REFERENCE SHOULD BE MADE TO THE
TEXT OF THE PLAN WHICH IS SET FORTH IN APPENDIX B, FOR COMPLETE
INFORMATION.
Description of the Plan
Pursuant to the Plan, the Company will annually grant options and deferred
shares to the non-employee directors until the annual meeting of
shareholders in 2006.
Options
Following each annual meeting of shareholders, each non-employee director
will be granted an option to purchase shares. The number of shares will be
determined by dividing $30,000 by one-third of the fair market value of a
share on the date of grant. The formula is based on an approximation of a
Black-Scholes model and is intended to result in the grant of an option
that has an approximate value of $30,000. The Company's experience with the
Black-Scholes model during the past 5 years has consistently resulted in a
value close to one third of the market price at the time of the
calculation. The calculations were based on (i) the assumption that options
will be exercised at maturity, (ii) the interest rate at the time of the
calculation on U.S. Treasury Bonds with a maturity comparable to the option
term, (iii) the expected volatility at the time of the calculation, (iv)
the dividend rate per share in effect at the time of the calculation, and
(v) a 10% deduction due to the lack of transferability of options.
In addition to annual grants, a pro rata grant will be made following the
election or appointment of a director other than at an annual meeting.
Options will expire ten years from the date of grant (the ``expiration
date'').
The purchase price per share to be specified in each option granted under
the Plan will be the fair market value of a common share of the Company on
the date the option is granted. The Plan does not authorize the repricing
of options to specify a lower purchase price, through amendment of
outstanding options, cancellation of outstanding options, the grant of
replacement options or any other method, except for anti-dilution
adjustments.
The Plan permits the Company to provide that payment of the purchase price
upon exercise of options may be made in cash, shares owned by the optionee
for at least six months, any other lawful form of consideration or a
combination thereof. Each share received by the Company in payment of the
purchase price will be valued at its fair market value on the date of
exercise.
The Company may terminate or suspend options if the Company determines, in
its sole discretion, that the participant has acted in a manner detrimental
to the Company.
Options will not be transferrable other than by will or the laws of descent
and distribution and gifts to members of the participant's immediate family
subject to conditions established by the Company.
Deferred Shares
Deferred shares under the Plan will be evidenced by bookkeeping entries and
will evidence unfunded and unsecured general obligations of the Company.
Following each annual meeting of shareholders, deferred shares will be
granted to each non-employee director. The number of deferred shares will
be determined by dividing $30,000 by the fair market value of a share. In
addition to the annual grants, a pro rata grant will be made following the
election or appointment of a non-employee director other than at an annual
meeting. The deferred shares will be credited to a ``common share
equivalent account'' established for each director. Dividend equivalents
equal to the per share cash dividend paid will be credited to each
director's common share equivalent account with respect to each deferred
share credited to the director's account. Dividend equivalents will be
converted into deferred shares based on the fair market value of a share on
the dividend payment date.
Deferred shares and interests in common share equivalent accounts will not
be transferrable other than by will or the laws of descent and
distribution.
Initial Grants
On February 6, 1996, an initial stock option grant of 804 shares at an
exercise price of $41.32 was made to each non-employee director. As of
January 1, 1996, an initial grant of 268.30753 deferred shares was made to
each non-employee director. These grants were made to replace the
terminated directors' compensation and benefits as described above under
``Directors' Compensation and Benefits'' for the period from January 1,
1996 through May 9, 1996 and are subject to approval of the Plan by the
Company's shareholders.
The following table lists the initial grants and the estimated grants to be
made on May 9, 1996.
NEW PLAN BENEFIT TABLE
May 9, 1996 Grant
Initial Grant (a) (estimated) (b)
Number of Number of
Shares Shares
Number of Subject Number of Subject
Deferred to Stock Deferred to Stock
Shares Option Shares Option
H. Adams, Jr. 268.30753 804 654.87884 1,964
W. L. Batts 268.30753 804 654.87884 1,964
J. W. Cozad 268.30753 804 654.87884 1,964
W. J. LaMothe 268.30753 804 - -
M. A. Miles (c) 268.30753 804 654.87884 1,964
R. C. Notebaert (c) - - 654.87884 1,964
N. C. Reynolds 268.30753 804 654.87884 1,964
C. B. Rogers, Jr. 268.30753 804 654.87884 1,964
D. H. Rumsfeld (c) 268.30753 804 654.87884 1,964
D. A. Terrell (c) 268.30753 804 654.87884 1,964
All non-employee
directors as a
group 2,414.76777 7,236 5,893.90956 17,676
(a) Subject to shareholder approval.
(b) Assuming that the fair market value of a share on the date of grant is
equal to $45.81, the value computed in accordance with the Plan on
February 29, 1996.
(c) Provided they are elected as directors at the meeting.
Tax Withholding Rights
Under the Plan, the Company may grant tax withholding rights in connection
with grants under the Plan. Tax withholding rights will permit the
participant to elect to have shares withheld upon exercise of an option or
deferred shares cancelled at the time that such participant recognizes
income for Federal tax purposes. The number of shares withheld or deferred
shares cancelled shall have a fair market value equal to 28%, or such
higher rate as may be required, of the gross income recognized by the
participant for federal income tax purposes. The Company will remit to the
U.S. Department of the Treasury an amount equal to the fair market value of
the shares cancelled or withheld.
Vesting
Options will become exercisable on the first anniversary of the date of
grant or, in the case of the initial grant, on January 1, 1997. If a
director's service terminates due to death, disability or retirement prior
to the first anniversary of the date of grant, only a pro rata portion of
the option will become exercisable.
Deferred shares will vest on the first anniversary of the date of grant.
Upon termination of service as a director prior to the first anniversary of
the date of grant, a pro rata number of deferred shares will vest.
Termination of Service
Upon termination of service as a director, option rights shall terminate
except that an option that is exercisable or is to become exercisable will
remain exercisable for at least two years following termination, but in no
event later than the expiration date. If termination of service is due to
death, disability or retirement, the period during which the option may be
exercised following termination of service will be at least equal to one
year for each year of service to a maximum of five years, but in no event
later than the expiration date. In the event of death while serving as a
director or during the period following termination of service during which
an option remains exercisable, an option will remain exercisable for at
least one year from the date of death.
Following termination of a director's service, one share will be issued in
exchange for each whole vested deferred share. The value of any fractional
share will be paid in cash. The Company may permit participants to elect
that delivery of common shares in exchange for deferred shares be made in
not more than 10 annual installments. Any unvested deferred shares will be
forfeited.
Number of Shares Subject to Plan
The aggregate number of deferred shares and shares which may be subject to
options granted in any calendar year may not exceed one tenth of one
percent of the shares outstanding as of the first business day of such
year, plus the number of shares available for grant in the prior calendar
year but not used for grants in that year. The number of shares tendered in
payment of the purchase price specified in options will be deducted from
the number of shares granted and may be regranted pursuant to the Plan.
Adjustment in Connection with Certain Events
The Plan provides that the Company will make such adjustment as is
necessary to preserve the economic value of outstanding and future grants,
if the Company determines that an adjustment is appropriate to prevent
dilution or enlargement of participants' rights in the event of certain
distributions to shareholders, extraordinary corporate transactions or
other events specified in the Plan. The Plan also provides that, in the
event of certain extraordinary corporate transactions or other events
specified in the Plan, all rights under options will terminate as to
unpurchased shares except to the extent provided by the Company and that
appropriate and equitable provision will be made so as to prevent dilution
or enlargement of participants' rights under the Plan and to preserve the
economic value of outstanding awards.
Administration
The Plan provides that it shall be administered by the Board of Directors
of the Company (the ``Board'') or, to the extent authorized by the Board, a
committee of directors. The Compensation Committee has been appointed as
the committee authorized to exercise the limited discretionary powers of
the Company under the Plan, except that the Nominating Committee has been
appointed as the committee authorized to administer the provision of the
Plan allowing for the termination or suspension of exercisability of any
option. The Compensation Committee may restrict or limit participants'
rights but has no power to select the participants who will receive awards,
determine the number of shares to be awarded or the price or time at which
awards are to be granted.
Pursuant to the Plan, each member of the Board or any committee, and, to
the extent provided by the Board or any committee, any other person to whom
duties or powers shall be delegated in connection with the Plan, shall
incur no liability with respect to any action taken or omitted to be taken
in connection with the Plan and shall be fully protected in relying in good
faith upon the advice of counsel, to the fullest extent permitted under
applicable law.
The Board may amend the Plan without shareholder approval, except as
specified in the Plan.
Federal Income Tax Consequences
The following material summarizes the principal anticipated federal income
tax consequences of grants under the Plan to participants and the Company.
Consequences to Participants
Options. In connection with the exercise of an option, an optionee will
generally realize compensation at the time the option is exercised for
federal income tax purposes, in an amount equal to the difference between
the option price and the fair market value of the shares acquired.
Payment of option price in shares. If an option is exercised and payment is
made by means of previously held shares or shares and cash, there is no
gain or loss recognized to the optionee on the previously held shares. The
optionee's basis and holding period of the previously held shares will be
carried over to an equivalent number of shares received under the option.
Any additional shares received under the option will have a basis equal to
the compensation realized by the optionee for federal income tax purposes
plus the amount of any additional cash paid.
Deferred shares. The participant will realize taxable compensation at the
time the deferred shares are exchanged for shares. The amount of such
compensation will be equal to the fair market value of the deferred shares
on the date the deferred shares are exchanged.
Consequences to the Company
The Company will generally receive a federal income tax deduction at the
same time, and in the same amount, as compensation is realized by the
participant.
The closing price for the Company's common shares on March 19, 1996, as
reported in a summary of composite transactions in The Wall Street Journal
for stocks listed on the New York Stock Exchange, was $51.00 per share.
Items 4 and 5: Proposals to
Approve Material Terms of the
Performance Goals for the
Annual Incentive Compensation
Plan and the Long-Term
Incentive Compensation Plan
Annual and long-term incentives are designed to provide awards to certain
key employees of the Company and its subsidiaries based on the attainment
of certain financial objectives. At the annual meeting of shareholders on
May 12, 1994, the shareholders approved the material terms of performance
goals to conform the plans to changes in federal tax laws that require such
approval in order to preserve the deductibility to the Company, for federal
income tax purposes, of compensation in excess of $1 million for any
taxable year to its chief executive officer and the four other highest paid
executive officers named in the summary compensation table in the Company's
proxy statements. The Board of Directors believes it is desirable and in
the best interest of the Company to expand the range of possible
performance goals, and has recommended that the shareholders approve the
material terms of the expanded range of performance goals. In the event
such approval is not obtained, the Company will consider whether to
continue the nondiscretionary program for Executive Officers or to modify
the bonus programs.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THE MATERIAL TERMS OF PERFORMANCE GOALS ESTABLISHED FOR THE PLANS.
THE PERFORMANCE GOALS AND PLANS ARE DESCRIBED BELOW.
Under the Annual Incentive Compensation Plan (the ``Annual Plan'') and the
Long-Term Incentive Compensation Plan (the ``Long-Term Plan'') (together
the ``Plans'') certain officers and key employees of the Company and its
subsidiaries are eligible to receive awards under the Plans. As of January
31, 1996, there were 15 participants in each of the Plans, all of whom were
Executive Officers.
Generally, a participant must be employed by the Company or a subsidiary on
the last day of the performance period. If employment is terminated before
the end of a performance period, the Compensation Committee (the
``Committee'') may authorize the payment of a bonus.
The Committee will select participants and establish performance goals in
writing at the beginning of the fiscal year, in the case of the Annual
Plan, and at the beginning of a performance cycle, in the case of the
Long-Term Plan. Generally, a performance cycle will cover a three-year
period, with a new cycle beginning every other year. The performance goals
approved by the shareholders in 1994 include any or all of the following:
revenue, return on average equity, return on average assets, cash flow,
return on investment, net income, net income per share, operating earnings
and operating earnings per share. The additional goals for which approval
is being sought include any or all of: economic value added, market value
added, customer satisfaction performance goals measured by independent
customer satisfaction surveys, and employee opinion survey results measured
by an independent firm. Each objective performance goal must be based upon
or measured by criteria which would permit a third party having knowledge
of the relevant facts to determine whether the objective performance goal
was satisfied and to calculate the amount of nondiscretionary bonus payable
to a participant. The Committee will have no discretion to adjust the goals
once they have been set. The specific targets relating to the performance
goals constitute confidential business information and are not disclosed.
The Committee must certify, in writing, that the goals have been met before
any payments to participants may be made.
For Executive Officers named in the Summary Compensation Table at the end
of a performance period, the Committee will have no discretion to increase
the bonus. The Committee will have the right to award a discretionary cash
payment to any other participant. The Committee may eliminate or decrease a
bonus otherwise payable to a participant.
The maximum amounts payable each year under the Annual Plan to any
participant and to all Executive Officers who currently participate in the
Plan are $3,900,000 and $12,600,000, respectively. The maximum amounts
payable for each performance cycle under the Long-Term Plan to any
participant and to all Executive Officers who currently participate in the
Plan are $2,400,000 and $7,400,000, respectively.
Bonuses are paid to participants as soon as practicable after the fiscal
year or performance cycle in which earned. Amounts earned in excess of 200%
(which currently may not exceed 230%) of the target bonus are paid in the
form of restricted shares that may be forfeited upon certain events.
Bonuses are payable only to a participant or a participant's beneficiaries.
No interests in the Plan may be assigned, encumbered or transferred other
than by will or the laws of descent and distribution.
The Board or the Committee may amend, suspend or modify the Plans at any
time, except that changes to the performance goals and to the maximum
nondiscretionary bonus are subject to the approval of the Company's
shareholders.
Item 6: Amendment of Restated
Certificate of Incorporation, as
amended, to delete provisions
concerning the Company's
Series A Mandatorily
Exchangeable Preferred Shares
(``PERCS[trademark]'')
Item 6 is a proposal to amend the Company's Restated Certificate of
Incorporation (``Certificate'') by deleting Section 3.2.2., which
designates an aggregate of 7,187,500 preferred shares of the Company, par
value $1.00 per share, as ``Series A Mandatorily Exchangeable Preferred
Shares'' (``PERCS[trademark]''). By notice dated February 16, 1995, the
Company established March 20, 1995 as the Exchange Date for the
PERCS[trademark]. Consequently, all depositary receipts related to
PERCS[trademark] were required to be exchanged for common shares of the
Company on such date and thereafter, the PERCS[trademark] are no longer
deemed to be outstanding. No additional PERCS[trademark] may be issued
under the Certificate. Section 3.2.2. is therefore no longer necessary.
The Board recommends that shareholders vote FOR the deletion of Section
3.2.2. of the Certificate, as proposed in Item 6.
Item 7: Shareholder Proposals
Classified Board
The following proposal 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 42%*, a large increase over the previous year,
14,623* registered owners of 169,889,170* shares, were cast in favor of
this proposal. The vote against included 35,533,012* unmarked proxies.
(*Management is requested to insert the correct figures.)
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 Industries, Hanover Direct
and others. A few years ago my resolution on the subject was withdrawn when
the Westinghouse directors agreed to end their stagger system. At the
recent Lockheed-Martin merger the stagger system was ended and also at a
special merger meeting of First Commerce Corporation in 1995. Further,
Allegheny Power System tried to put in a stagger system, as well as take
away cumulative voting, and the stockholders defeated it, showing
stockholders are interested in their rights.
Because of the normal need to find new directors and because of
environmental problems and the 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 CERES 10
points. The 11th, in our opinion, should be to end the stagger system of
electing directors and to have cumulative voting.
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.
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. If you disagree mark AGAINST.
NOTE: PROXIES NOT MARKED WILL BE VOTED FOR THIS RESOLUTION.
* Figures inserted by the Company at the shareholders' request.
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.
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 1997 annual meeting
of shareholders (other than those submitted for inclusion in the Company's
proxy material pursuant to Rule 14a-8 of the Proxy Rules of the SEC) must
be received by the Company no earlier than February 8, 1997 and no later
than March 10, 1997 to be presented at the meeting. Proposals pursuant to
Rule 14a-8 of the Proxy Rules must be received by November 20, 1996, 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, 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. In 1995, revenues received by Northern Trust for loan transactions,
cash management activities, custodian, securities lending and other
services for all such entities were approximately $2.4 million.
Except as otherwise specified above, no information is given in this proxy
statement for Executive Officers or directors of the Company for any
portion of the year 1995 during which any such person did not serve in such
capacity.
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
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 renumeration.
The Compensation Committee shall review the design, funding and investment
policies of the employee benefit plans of the Company and its subsidiaries,
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 such benefit plans and report and make
such recommendations to the Board of Directors as deemed appropriate.
Section 5. 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 as executive officers of the Company.
The Nominating Committee shall annually assess the performance of the
Board, evaluate the performance of the Chairman and Chief Executive Officer
of the Company, and review the management organization of the Company and
succession plans for the Chairman and Chief Executive Officer of the
Company, including consultation with the Chairman of the Board of Directors
regarding persons considered qualified to fill any vacancy that may occur
in the position of Chairman and Chief Executive Officer. In the event of
any such vacancy, the Nominating Committee shall recommend to the Board of
Directors a nominee to fill such vacancy.
Section 6. 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.
Appendix B
SEARS, ROEBUCK AND CO.
NON-EMPLOYEE DIRECTOR STOCK PLAN
This plan shall be designated as the ``Sears, Roebuck and Co. Non-Employee
Director Stock Plan'' (the ``Plan'').
Pursuant to the Plan, the Company shall grant, upon the terms and
conditions set forth herein, to directors (``directors'') of the Company
who are not employees or officers of the Company or its subsidiaries (i)
options (``options'') to purchase common shares of the Company
(``shares''), and (ii) deferred shares (``deferred shares'') that are
credited to a common share equivalent account and paid out in shares upon
termination of service as directors. No grants shall be made under the Plan
after the annual meeting of the Company's shareholders (``annual meeting'')
held in the year 2006. Grants under the Plan may be subject to such other
terms and conditions, not inconsistent with the Plan but which may limit or
restrict participant's rights, as may be determined by the Company.
Options
Awards. On February 6, 1996, a grant (the ``initial option grant'') of 804
shares at an exercise price per share equal to the fair market value on
that date was made to each director, subject to approval of the plan by the
shareholders of the Company at the annual meeting to be held on May 9,
1996, or at any adjournment thereof.
Immediately following each annual meeting, the Company shall grant to each
director an option to purchase shares. The number of shares subject to each
such option shall be determined by dividing $30,000 by one-third of the
fair market value of one share on the date of grant.
In addition, immediately following the election or appointment of any
person to serve as a director other than at an annual meeting, the Company
shall grant to such director an option to purchase shares. The number of
shares subject to each such option shall be determined by multiplying the
number of months remaining until the first anniversary of the immediately
preceding annual meeting by a fraction, the numerator of which shall be
$2,500 and the denominator of which shall be one-third of the fair market
value of one share on the date of grant.
Options granted under the Plan will be options which are not intended to be
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the ``Internal Revenue Code''), or any
successor provision.
Exercisability, Vesting, Expiration and Termination. The initial option
grant shall become exercisable on January 1, 1997. All other options
granted under the Plan shall become exercisable on the first anniversary of
the date of grant. Upon termination of service as a director due to death,
disability or retirement, any option held by such director that is not then
exercisable shall become exercisable on the first anniversary of the date
of grant with respect to the number of shares subject to such option,
multiplied by a fraction, the numerator of which shall be the number of
months (number of days from January 1, 1996 in the case of the initial
option grant) from the date of grant through the date of termination of
service and the denominator of which shall be 12 (129 in the case of the
initial option grant). Upon termination of service as a director, option
rights shall terminate except to the extent that they are then exercisable
or are to become exercisable as provided in the preceding sentence. Options
will expire ten years from the date of grant (``expiration date''), except
as set forth below in the event of death.
An option that is exercisable upon termination of service a a director or
becomes exercisable as provided above shall remain exercisable to the
extent provided below:
a) Termination of Service. In the event of termination of service as a
director, an option shall remain exercisable for two years following
termination of service, but in to event later than the expiration
date. Notwithstanding the foregoing, (i) in the event of a director's
termination of service due to death, disability or retirement, an
option shall remain exercisable for a period following termination of
service equal to the later of the period set forth above or one year
for each year of service to a maximum of five years, but in no event
later than the expiration date, and (ii) in the event of death while
serving as a director or during the period following termination of
service during which an option continues to be exercisable, an option
shall remain exercisable for not less than one year from the date of
death.
b) Termination by the Company. The Company may terminate or suspend the
exercisability of any and all options granted to a director or former
director, if the Company determines, in its sole discretion, that such
director or former director has acted in a manner detrimental to the
Company.
Purchase Price. The purchase price per share to be specified in any option
granted under the Plan shall be equal to the fair market value of a share
on the date such option is granted. The Company may provide that such
purchase price per share shall be paid to the Company by the participant in
cash, shares owned by the holder of the option for at least six months
prior to the date of exercise of the option, any other lawful form of
consideration therefor, or a combination thereof, in full no later than the
time of receipt of such share. If all or part of the payment is in the form
of shares, such shares shall be valued at their fair market value on the
date of exercise.
Deferred Shares
Awards. Deferred shares shall be bookkeeping entries evidencing unfunded
and unsecured general obligations of the Company. The interest of each
director in any deferred shares or in any common share equivalent account
relating thereto shall be that of a general creditor of the Company and
shall not confer upon any holder thereof any rights as a holder of shares
except to the extent expressly provided herein.
Effective as of January 1, 1996, a grant (the ``initial deferred share
grant'') of 268.30753 deferred shares was made to each director, subject to
approval of the plan by the shareholders of the Company at the annual
meeting to be held on May 9, 1996, or an an adjournment thereof.
Immediately following each annual meeting, the Company shall grant deferred
shares to each director. The number of deferred shares shall be determined
by dividing $30,000 by the fair market value of a share on the date of
grant. In addition, immediately following the election or appointment of
any person to serve as a director other than at an annual meeting, the
Company shall grant such director a number of deferred shares equal to the
number of shares granted to each director following the immediately
preceding annual meeting, multiplied by a fraction, the numerator of which
shall be the number of days remaining until the first anniversary of such
annual meeting and the denominator of which shall be 365 (366 in a leap
year). The deferred shares shall be credited to the director's common share
equivalent account.
Dividend Equivalents. An amount equal to the cash dividend paid per share
multiplied by the number of deferred shares credited to each director's
common share equivalent account as of any record date for the payment of
any cash dividend on shares shall be credited to such director's account as
of the related dividend payment date. Such amounts shall immediately be
converted into a number of deferred shares determined by dividing the total
amount so credited to such director's account by the fair market value of a
share on the dividend payment date.
Vesting. Deferred share awards shall vest on the first anniversary of the
date of grant. Upon termination of service as a director prior to the first
anniversary of the date of grant on any deferred shares, a number of such
deferred shares shall vest equal to the number of such deferred shares
multiplied by a fraction, the numerator of which shall be the number of
days from the date of grant through the date of termination of service and
the denominator of which shall be 365 (129 for the initial deferred share
grant and 366 in any other leap year). Deferred shares credited to a
participant's account as a result of a dividend shall vest immediately.
Termination. Following termination of a director's service, one share shall
be delivered in exchange for each whole vested deferred share. The value of
any fractional share shall be paid in cash. A director's unvested deferred
shares shall be forfeited upon termination of service. The Company may
permit a participant to elect that delivery of shares in exchange for such
deferred shares following termination of service be made in annual
installments over a period not to exceed ten years.
Tax Withholding Rights
To the extent permitted by the Company, a participant may elect to exercise
tax withholding rights. Upon exercise of any option under the Plan or
delivery of shares in exchange for deferred shares with respect to which a
participant has exercised tax withholding rights, the Company shall
withhold a number of shares having a fair market value on the date of
exercise or delivery, respectively, equal to 28%, or such higher amount as
may be required by law to be withheld, of the amount of gross income
recognized for Federal income tax purposes by such participant upon such
exercise, in the case of options, or upon such delivery, in the case of
deferred shares. In each such case, the Company shall, on behalf of the
respective participants, remit to the U.S. Department of the Treasury an
amount equal to such fair market value.
Fair Market Value
The fair market value per share on any date shall be the mean (adjusted, if
necessary, to the next higher full cent to eliminate any fractional cent)
between the high and low prices per share on such date as reported in a
summary of composite transactions for stocks listed on the New York Stock
Exchange, or if the New York Stock Exchange is not open for trading on such
date, the average of the means between the high and low prices per share,
as so reported, on the nearest date before and the nearest date after such
date on which the New York Stock Exchange is open for trading (adjusted to
the next higher full cent to eliminate any fractional cent).
Transferability
Options under the Plan shall be exercisable during a participant's lifetime
only by the participant or the participant's guardian or legal
representative. Options, deferred shares and interests in common share
equivalent accounts may not be sold, transferred, pledged or otherwise
assigned during a participant's lifetime, except that, to the extent
provided by the Company, options may be transferred through gifts to a
participant's immediate family.
Number of Shares Subject to Plan
The aggregate number of deferred shares and shares which may be subject to
options granted pursuant to the Plan in any calendar year shall not exceed
one tenth of one percent (.1%) of the shares outstanding as of the first
business day of such year, plus the number of shares available for the
prior calendar year but not covered by awards granted in that year. In the
event that the number of deferred shares and shares available for future
grant on any date is unsufficient to make all grants required on such date,
no further grants shall be made in that year. Upon delivery of shares in
full or partial payment of the purchase price specified in any option under
the Plan, the number of such shares shall be deducted from the number of
shares granted to the participant pursuant to such option for purposes of
determining the number of deferred shares and shares which thereafter may
be granted pursuant to the Plan. The shares delivered under the Plan may be
authorized but unissued shares or treasury shares.
Adjustments in Connection with Certain Events
In the event of a stock dividend, stock split, combination or other
reduction in the number of issued shares, or spin-off or other distribution
of any assets of the Company or any subsidiary or all or any portion of the
interest of the Company in any subsidiary to the shareholders of the
Company such that the Company shall determine that an adjustment shall be
appropriate to prevent dilution or enlargement of participant's rights
under the Plan, the Company shall make such adjustments, if any, in the
aggregate number of shares which may be acquired pursuant to the Plan, the
number of unpurchased shares subject to option, the exercise price per
share and the number of deferred shares credited to common share equivalent
accounts as is necessary to preserve the economic value of outstanding and
future grants of options and deferred shares.
In the event of a merger, consolidation, reorganization, sale or exchange
of substantially all assets, or dissolution of the Company (i) rights under
options shall terminate as to shares not theretofore purchased except to
the extent provided by the Company or in the terms of the merger,
consolidation, reorganization, or plan for dissolution or sale or exchange
of the assets and (ii) appropriate and equitable provision shall be made by
the Company, in the terms of the merger, consolidation, reorganization or
plan for dissolution or sale or exchange of the assets, or otherwise, with
respect to participants' rights under options or as holders of deferred
shares, to prevent dilution or enlargement of such rights and preserve the
economic value of outstanding options and deferred shares.
Administration
The Plan shall be administered by the Board of Directors of the Company
(the ``Board'') or, to the extent authorized by or pursuant to a resolution
of the Board, a committee of directors of the Company (the
``Committee'')(the ``Plan Administrators''). Each Plan Administrator shall,
to the extent not inconsistent with the Plan and to the extent so
authorized by or pursuant to a resolution of the Board, have the power to
determine the terms and conditions, not inconsistent with the Plan but
which may limit or restrict participants' rights, to which options or
deferred shares shall be subject and to amend, modify or waive any term or
condition of any outstanding grant (provided, however, that no such
limitation, restriction, amendment or modification shall impair any
outstanding right of any participant without the consent of such
participant, except to the extent permitted under the terms and conditions
of such grant as then in effect); and authorize any action of or make any
determination by the Company and prescribe such provisions and
interpretations in connection with the Plan as such Plan Administrator
shall deem necessary or advisable for carrying out the purposes of the
Plan. Notwithstanding the foregoing, the Plan Administrators shall have no
authority, discretion or power to select the directors who will receive
awards pursuant to the Plan, determine the number of shares subject to such
awards or the price thereof or the time at which such awards are to be
granted.
Each member of the Board or the Committee, and, to the extent provided by
or pursuant to a resolution of the Board or the Committee, any other person
to whom duties or powers shall be delegated in connection with the Plan,
shall incur no liability with respect to any action taken or omitted to be
taken in connection with the Plan and shall be fully protected in relying
in good faith upon the advise of counsel, to the fullest extent permitted
under applicable law.
Relationship to Other Plans
Nothing in this Plan shall prevent the Company from adopting or continuing
other or additional compensation arrangements. Grants under the Plan may
form a part of or otherwise be related to such other or additional
compensation arrangements.
Amendment
The Board shall, in its discretion, have the power from time to time to
amend, suspend, discontinue or terminate the Plan without the consent of
shareholders or participants (provided no such amendment, suspension,
discontinuance or termination shall impair any outstanding right of any
participant without the consent of such participant), without shareholder
approval to the fullest extent permitted under the New York Business
Corporation Law as in effect at the time of such amendment; provided,
however, that shareholder approval shall be required for any amendment (i)
which would increase the number of shares which may be granted under the
Plan, or permit the granting of options specifying a purchase price of less
than fair market value on the date of grant (in each such case, except as
provided above in connection with any (a) stock dividend, stock split,
combination or other reduction in the number of issued shares, spin-off or
other distribution of any assets of the Company or any subsidiary or all or
any portion of the interest of the Company in any subsidiary to the
shareholders of the Company, or (b) in connection with any merger,
consolidation, reorganization, sale or exchange of substantially all
assets, or dissolution of the Company), or (ii) which the Board shall
determine shall require shareholder approval; and provided further, that
any ``plan provision'' referred to in Rule 16b-3(c)(2)(ii)(B) under the
Securities Exchange Act of 1934 or any successor provision shall not be
amended more than once every six months, other than to comport with the
provisions of the Internal Revenue Code or the rules thereunder.
Governing Law
The validity and construction of the Plan and any agreement hereunder shall
be governed by the internal laws of the State of New York.
Table of Contents
Page
Letter of Arthur C. Martinez Cover
Notice of Meeting Inside
Front
Cover
Proxy Statement 1
Election of Directors 2
Security Ownership of Directors,
Nominees for Director and
Executive Officers 4
Security Ownership of Certain
Beneficial Owners 5
Further Information Concerning the
Board of Directors 5
Directors' Compensation and Benefits 7
Executive Compensation 8
Summary Compensation Table 8
Stock Options 9
Long-Term Incentive Compensation Plan 10
Pension Plan Table 10
Employment Contracts, Termination
of Employment and Change in
Control Arrangements 11
Report of the Compensation Committee 14
Performance Graph 18
Approval of Auditors 19
Compensation Committee Interlocks and
Insider Participation 19
Proposal to Adopt and Approve
Non-Employee Director Stock Plan 19
Proposals to Approve Material Terms
of the Performance Goals for the
Annual Incentive Compensation Plan
and the Long-Term Incentive
Compensation Plan 23
Amendment of Restated Certificate of
Incorporation to delete provisions
concerning the Company's Series A
Mandatorily Exchangeable Preferred
Shares (``PERCS[trademark]'') 24
Shareholder Proposals 24
Certain Transactions 26
Other Matters 26
Appendix A: Excerpts from By-Laws of
Sears, Roebuck and Co. A-1
Appendix B: Non-Employee Director
Stock Plan B-1
Notice
of
Meeting
and
Proxy Statement
1996 Annual
Meeting
of
Shareholders
SEARS LOGO
<PAGE>
SEARS, ROEBUCK AND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SEARS, ROEBUCK AND CO.
P R O X Y
The undersigned hereby appoints HALL ADAMS, JR., ARTHUR C.
MARTINEZ and CLARENCE B. ROGERS, JR., and each of them, proxies,
each with full power of substitution, to vote the shares of the
undersigned at the Annual Meeting of Shareholders of Sears, Roebuck
and Co. on May 9, 1996, and any adjournments thereof, upon all
matters as may properly come before the meeting. Discretionary
authority will not be used in connection with voting on adjournment
of the meeting in order to solicit further proxies. Without
otherwise limiting the foregoing general authorization, the proxies
are instructed to vote as indicated herein.
Election of Directors, Nominees in Class B:
Michael A. Miles, Donald H. Rumsfeld, Dorothy A.
Terrell
Nominee in Class C: Richard C. Notebaert
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE
APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF
YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN THIS CARD ON THE REVERSE SIDE BEFORE RETURNING IT.
Instruction: Unless otherwise specified in the space provided
below this proxy shall authorize the proxies named herein to
cumulate all votes which the undersigned is entitled to cast at the
annual meeting for, and to allocate such votes among, one or more
of the nominees listed above as such proxies shall determine, in
their sole and absolute discretion, in order to maximize the number
of such nominees elected to the Company's Board of Directors. To
specify a different method of cumulative voting, write "Cumulate
For" and the number of Shares and the name(s) of the nominee(s) in
the space provided below.
_________________________________________________________________
<PAGE>
/ X /PLEASE MARK YOUR 0111
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN AND IN THE DISCRETION OF THE PROXY HOLDERS ON ALL
OTHER MATTERS COMING BEFORE THE MEETING. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR ALL OF THE BOARD OF DIRECTORS'
NOMINEES, FOR PROPOSALS 2, 3, 4, 5 and 6 AND AGAINST PROPOSAL 7,
INCLUDING AS TO WHOLE SHARES HELD FOR THE UNDERSIGNED'S ACCOUNT IN
THE DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4,
5 and 6.
1. Election of Directors For / / Withheld / /
(See reverse)
For, except vote withheld from the following nominees(s):
__________________________________________________________
2. Appointment of
Deloitte & Touche LLP
as independent auditors
for the year 1996. For / / Against / / Abstain / /
3. Approval of Non-Employee
Director Stock Plan. For / / Against / / Abstain / /
4. Approval of performance
measures under Annual
Incentive Compensation
Plan. For / / Against / / Abstain / /
5. Approval of performance
measures under Annual
Incentive Compensation
Plan. For / / Against / / Abstain / /
6. Amend Restated Certificate--
delete Series A Mandatorily
Exchangeable Preferred
Shares. For / / Against / / Abstain / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 7.
7. Shareholder proposal
relating to de-
classifying
the Board. For / / Against / / Abstain / /
Check below if you plan
to attend the annual meeting.
[ ]
SIGNATURE(S) ______________________________________
Date ____________ NOTE: Please sign exactly as name appears
hereon. Joint owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full
title as such.
