<PAGE> 1
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 [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SEARS, ROEBUCK AND CO.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 20, 1997
ARTHUR C. MARTINEZ
Chairman of the Board
Dear Shareholder:
I am pleased to invite you to attend the Company's 1997 annual meeting of
shareholders on Thursday, May 8, 1997. We will hold the meeting at 10:00 a.m. in
the Rubloff Auditorium at the Art Institute of Chicago, 230 South Columbus
Drive, Chicago, Illinois.
On the page following this letter you will find the Notice of Meeting,
which lists the matters to be considered at the meeting. Following the Notice of
Meeting is the proxy statement, which describes the matters listed in the Notice
of Meeting. Also enclosed you will find your proxy card, which allows you to
vote on these matters, and the Company's 1996 Annual Report.
Your vote is important. PLEASE COMPLETE AND MAIL IN YOUR PROXY CARD
PROMPTLY, even if you plan to attend the meeting. You can attend the meeting and
vote in person, even if you have sent in a proxy card.
The Board of Directors recommends that shareholders vote FOR proposals 1, 2
and 3, and AGAINST proposal 4.
The rest of the Board and I look forward to seeing you at the meeting.
Whether or not you can attend, we greatly appreciate your cooperation in
returning the proxy card.
Sincerely,
/s/ Arthur C. Martinez
----------------------
Arthur C. Martinez
<PAGE> 3
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 20, 1997
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 8, 1997, at 10:00 a.m., for the following purposes:
1. to elect four directors in Class C for terms expiring at the 2000 annual
meeting of shareholders and one director in Class A for a term expiring
at the 1998 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 1997;
3. to vote on the proposed Sears Employee Stock Purchase Plan;
4. to vote on a shareholder proposal concerning declassifying the Board of
Directors; and
5. to transact such other business as may properly come before the meeting.
By Order of the Board of Directors,
/s/ MICHAEL D. LEVIN
--------------------
Michael D. Levin
Secretary
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY IN THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED
IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE> 4
Sears, Roebuck and Co.
Proxy Statement
March 20, 1997
- --------------------------------------------------------------------------------
The Board of Directors at Sears, Roebuck and Co. is soliciting proxies from
its shareholders for the annual meeting of shareholders to be held on May 8,
1997.
You are entitled to vote at that meeting if you were a shareholder of
record at the close of business on March 19, 1997. On March 20, 1997, the
Company began mailing to all such shareholders a proxy card, this proxy
statement, and the Company's 1996 Annual Report. (If you participate in The
Savings and Profit Sharing Fund of Sears Employees, the Fund's trustee will mail
you a voting instruction form instead of a proxy card. The voting instruction
form permits you to direct the voting of your shares in the Fund and generally
works just like the proxy card.) On March 19, 1997, there were 392,055,349
common shares outstanding.
Shareholders are entitled to "cumulative voting" for the election of
directors. In other words, each shareholder may cast a number of votes equal to
the number of his or her shares multiplied by the number of directors to be
elected. The shareholder may cast all of those votes for one nominee or may
distribute them among the nominees. On all other matters, shareholders are
entitled to one vote per share.
Your signed proxy card will appoint Warren L. Batts, Arthur C. Martinez,
Michael A. Miles, Nancy C. Reynolds, Clarence B. Rogers, Jr., and Donald H.
Rumsfeld as proxy holders, or your representatives, to vote your shares.
If you sign and return your proxy card without giving voting directions,
the proxy holders will vote your shares:
(i) for all of the nominees for director listed on pages 3 and 4;
(ii) for the appointment of Deloitte & Touche LLP as independent auditors
for 1997;
(iii) for adoption of the Sears Employee Stock Purchase Plan; and
(iv) against the shareholder proposal relating to declassifying the Board.
In addition, unless you specify otherwise on your signed proxy card, you
will give the proxy holders discretion to vote shares cumulatively and for less
than the entire number of nominees.
The proxy card permits you to direct the proxy holders to:
(i) withhold your votes from particular nominees;
(ii) cumulate or "bunch" your votes for particular nominees; and
(iii) vote "for," "against," or "abstain" from the appointment of auditors,
the adoption of the Sears Employee Stock Purchase Plan, and the shareholder
proposal relating to declassifying the Board.
Signing and returning your proxy card will not prevent you from voting in
person at the meeting. If you vote in person at the meeting, your previously
voted proxy will be automatically revoked. You may also revoke your proxy any
time before it is voted by sending notice prior to the meeting to:
First Chicago Trust Company of New York
P.O. Box 2500, Suite 4665
Jersey City, New Jersey 07303-2500
If you submit more than one proxy, each later-dated proxy will revoke all
previous proxies.
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 your
shares for a substitute if you have submitted a signed proxy card.
1
<PAGE> 5
- --------------------------------------------------------------------------------
As far as the Company knows, the only matters to be brought before the
meeting are those referred to in this proxy statement. As to any other matters
presented at the meeting, if you send in a signed proxy card, the proxy holders
may vote your shares in their discretion.
No business can be conducted at the meeting unless one-third of all
outstanding shares entitled to vote are either present at the meeting in person
or represented by proxy.
The five nominees who receive the most votes will be elected to the five
open directorships even if they get less than a majority of the votes. In order
for the appointment of Deloitte & Touche LLP as auditors and the shareholder
proposal relating to declassifying the Board to be approved, more shares must be
voted "for" than "against" each proposal. In order for the Sears Employee Stock
Purchase Plan to be adopted, a majority of all outstanding shares must be voted
"for" adoption of the Plan.
Abstentions and broker non-votes are counted as shares present for
determining if there are sufficient shares present to hold the meeting; however,
they are not counted as votes "for" or "against" any item. Because approval of
the Sears Employee Stock Purchase Plan requires a majority of all outstanding
shares, abstentions and broker non-votes have the same effect as votes against
adoption of the Plan.
All proxies, ballots and tabulations that identify the vote of a particular
shareholder are kept confidential, except as necessary (i) to allow the
inspectors of election to certify the voting results, or (ii) to meet certain
legal requirements--for example, in the pursuit or defense of lawsuits. Those
counting votes and the inspectors are independent of the Company and its
directors, officers and employees. This year, representatives of Seaway National
Bank, a local Chicago minority-owned bank, will act as the inspectors of
election and First Chicago Trust Company of New York will count the votes.
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. The comments will be provided without reference to the vote of the
shareholder, unless the vote is mentioned in the comment or disclosure of the
vote is necessary to understand the comment. At the Company's request, those
counting votes may provide the Company with a list of shareholders that have not
voted and periodic status reports on the aggregate vote. These status reports
may include break-downs of vote totals by different types of shareholders, as
long as the Company is not able to determine how a particular shareholder voted.
Item 1: Election of Directors
-----------------------------------------------------
Item 1 is the election of several members of the Board of Directors. The
Board of Directors is grouped into three classes, as nearly equal in number as
possible. Directors hold office for staggered terms of three years. One of the
three classes is elected each year to succeed the directors whose terms are
expiring.
The directors in Class C, whose terms expire at the 1997 annual meeting of
shareholders, are Hall Adams, Jr. and Richard C. Notebaert. Both have been
nominated to serve in Class C for another term expiring in 2000. In addition,
Alston D. Correll, Jr. (who was elected by the Board to serve as a director of
the Company on August 14, 1996) and Patrick G. Ryan have been nominated to serve
in Class C. (James W. Cozad, formerly a Class C director, retired on February
10, 1997.)
Hugh B. Price has been nominated to serve in Class A.
The directors in Class A are serving terms that expire in 1998, and the
directors in Class B are serving terms that expire in 1999.
2
<PAGE> 6
- --------------------------------------------------------------------------------
Information as to each nominee and as to directors continuing in Classes A
and B follows:
NOMINEES FOR DIRECTOR
CLASS C: TERMS EXPIRING AT 2000 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
HALL ADAMS, JR. Chairman of the Board and Chief Executive Officer of Leo
Burnett Company, Inc. (advertising agency) from January 1987
photo Adams Jr 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 63.
Common shares beneficially owned: 2,704.
ALSTON D. CORRELL, JR. Chairman of the Board, Chief Executive Officer and President
of Georgia-Pacific Corporation (building products, pulp and
photo Correll Jr paper products and related chemicals) since December 1993.
Mr. Correll served as President and Chief Executive Officer
of Georgia-Pacific from May 1993 to December 1993, President
and Chief Operating Officer from August 1991 to May 1993,
Executive Vice President, Pulp and Paper from April 1989 to
July 1991 and Senior Vice President, Pulp and Paper from
February 1988 to March 1989. He is also a director of
SunTrust Banks, Inc. and of The Southern Company.
Member: Audit Committee and Compensation Committee.
Director since 1996. Age 55.
Common shares beneficially owned: 1,376.
Deferred common share equivalents: 336.*
RICHARD C. NOTEBAERT Chairman of the Board, President and Chief Executive Officer
of Ameritech Corporation (telephone, data and video
photo Notebaert 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.
Member: Audit Committee and Nominating Committee.
Director since 1996. Age 49.
Common shares beneficially owned: 627.
</TABLE>
3
<PAGE> 7
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PATRICK G. RYAN Chairman of the Board, President and Chief Executive Officer
of Aon Corporation (insurance products and other financial
photo Ryan services) since April 1990, and President and Chief
Executive Officer of Aon Corporation since August 1982. Mr.
Ryan is a director of First Chicago NBD Corporation,
Chairman of the Board of Trustees of Northwestern
University, and a Trustee of Rush-Presbyterian-St. Luke's
Medical Center and The Field Museum of Natural History.
Age 59.
Common shares beneficially owned: 1,000.
</TABLE>
CLASS A: TERM EXPIRING AT 1998 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
HUGH B. PRICE President and Chief Executive Officer of the National Urban
League (social service and welfare organization) since July,
photo Price 1994. Mr. Price served as the Vice President of the
Rockefeller Foundation from November 1988 to June 1994. He
is a director of NYNEX Corporation and the Metropolitan Life
Insurance Company. Mr. Price is also a Trustee of
Educational Testing Service, the Urban Institute and the
Academy of Political Science.
Age 55.
Common shares beneficially owned: 0.
</TABLE>
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
CLASS A: TERMS EXPIRING AT 1998 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
WARREN L. BATTS Chairman and Chief Executive Officer of Tupperware
Corporation (consumer products) since June 1996. Mr. Batts
photo Warren L. Batts has also been Chairman of Premark International, Inc.
(consumer and commercial products) since May 1996, and was
its Chairman and Chief Executive Officer from September 1986
to May 1996. In addition, Mr. Batts is 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 64.
Common shares beneficially owned: 3,304.
Deferred common share equivalents: 24,432.*
</TABLE>
4
<PAGE> 8
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ARTHUR C. MARTINEZ Chairman of the Board, President and Chief Executive Officer
of the Company since August 1995 and Chairman and Chief
photo Martinez 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, Amoco Corporation, and Northwestern Memorial
Hospital and is a Trustee of Northwestern University, the
Chicago Symphony Orchestra and The Art Institute of Chicago.
Mr. Martinez serves as chairman of the National Minority
Supplier Development Council, Inc., Chairman of the Board of
Trustees of Polytechnic University and deputy chairman of
The Federal Reserve Bank of Chicago.
Chairman: Executive Committee.
Director since 1995. Age 57.
Common shares beneficially owned: 458,472.
NANCY C. REYNOLDS Senior Consultant to The Wexler Group (public affairs and
government relations consulting), a unit of Hill and
photo Reynolds 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, and a Trustee of
The Smithsonian's National Museum of the American Indian.
Chairman: Public Issues Committee.
Member: Audit Committee and Nominating Committee.
Director since 1982. Age 69.
Common shares beneficially owned: 3,604.
CLARENCE B. ROGERS, JR. Chairman of the Board of Equifax Inc. (information-based
administrative services) since January 1996 and Chairman and
photo Rogers Jr 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., Oxford Industries, Inc. and Teleport Communications
Group, Inc.
Chairman: Compensation Committee.
Member: Executive Committee, Nominating Committee and Public
Issues Committee.
Director since 1980. Age 67.
Common shares beneficially owned: 6,400.
Deferred common share equivalents: 29,014.*
</TABLE>
5
<PAGE> 9
- --------------------------------------------------------------------------------
CLASS B: TERMS EXPIRING AT 1999 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
MICHAEL A. MILES Chairman of the Board and Chief Executive Officer of Philip
Morris Companies Inc. (a holding company engaged primarily
photo Miles 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. Mr. Miles is also a
Trustee of Northwestern University.
Member: Executive Committee, Compensation Committee and
Nominating Committee.
Director since 1992. Age 57.
Common shares beneficially owned: 4,850.
Deferred common share equivalents: 6,124.*
DONALD H. RUMSFELD Mr. Rumsfeld is currently in private business and has served
as Chairman of the Board of Gilead Sciences Inc. (a
photo Rumsfeld biotechnology company) since January 1997, and as a director
since 1988. He served as Chairman, President and Chief
Executive Officer of General Instrument Corporation (an
electronics company) from October 1990 until August 1993.
From 1977 to 1985, he served as CEO of G.D. Searle & Co. (a
pharmaceutical company). He is also a director of ABB AB,
Gulfstream Aerospace Corp., 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 G.D. Searle & Co., Mr. Rumsfeld served in a variety
of U.S. Government posts from 1957 to 1977, including U.S.
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 64.
Common shares beneficially owned: 6,304.
Deferred common share equivalents: 15,954.*
</TABLE>
6
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DOROTHY A. TERRELL President of SunExpress, Inc. (operating company of Sun
Microsystems, Inc., a leading supplier of open network
photo Dorothy A. Terrell 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, National
Housing Partnership Foundation, and The Computer Museum. She
is a member of the advisory council of the Stanford Graduate
School of Business. Her professional affiliations include
The Boston Club and the Massachusetts Governor's Council on
Economic Growth and Technology.
Member: Audit Committee, Compensation Committee and Public
Issues Committee.
Director since 1995. Age 51.
Common shares beneficially owned: 2,354.
- --------------------------------------------------------------------------------
</TABLE>
* Represents fees deferred 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
January 31, 1997. No distributions have been made from the fund.
7
<PAGE> 11
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES FOR DIRECTOR, MOST HIGHLY COMPENSATED
EXECUTIVE OFFICERS AND ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP:
<TABLE>
<CAPTION>
SEARS
COMMON SHARES
-------------
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OWNERSHIP(A)
- ------------------------------------------------------ -------------
<S> <C>
Hall Adams, Jr. ...................................... 2,704(b)
Warren L. Batts....................................... 3,304(b)
Alston D. Correll, Jr. ............................... 1,376
Arthur C. Martinez.................................... 458,472(c)
Michael A. Miles...................................... 4,850(b)
Richard C. Notebaert.................................. 627
Hugh B. Price......................................... 0
Nancy C. Reynolds..................................... 3,604(b)
Clarence B. Rogers, Jr. .............................. 6,400(b)
Donald H. Rumsfeld.................................... 6,304(b)
Patrick G. Ryan....................................... 1,000
Dorothy A. Terrell.................................... 2,354(b)
John H. Costello...................................... 164,162(d)
Alan J. Lacy.......................................... 86,968(e)
Robert L. Mettler..................................... 197,400(f)
Marvin M. Stern....................................... 114,078(g)
Allan B. Stewart...................................... 150,656(h)
All directors and executive officers as a group....... 1,752,617(i)
</TABLE>
- ------------------
(a) Direct ownership unless indicated otherwise.
(b) Includes 804 shares subject to option.
(c) Includes 322,172 shares subject to option.
(d) Includes 146,898 shares subject to option.
(e) Includes 71,310 shares subject to option.
(f) Includes 187,852 shares subject to option.
(g) Includes 88,825 shares subject to option.
(h) Includes 130,966 shares subject to option.
(i) Includes 1,434,415 shares subject to option.
Share ownership of nominees, directors and executive officers is as of
January 31, 1997 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 1990 Employees Stock Plan as of January 31,
1997, which are subject to forfeiture under certain circumstances, (iii) shares
credited to individual accounts in The Savings and Profit Sharing Fund of Sears
Employees, a qualified savings and defined contribution plan (the "Profit
Sharing Fund"), (iv) options issued under the Company's employee stock plans
which are exercisable on or prior to April 1, 1997, and (v) in the case of
directors, deferred shares under the Company's Non-Employee Director Stock Plan.
To the knowledge of the Company, as of January 31, 1997, no director had a
beneficial interest in more than .12% of the outstanding Sears common shares and
all directors, nominees for director and executive officers together
beneficially owned an aggregate of 1,752,617 Sears common shares (.45% of the
outstanding shares), which included 1,434,415 shares subject to option.
8
<PAGE> 12
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF DECEMBER 31, 1996 (A)
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP: OF
NAME AND ADDRESS SEARS COMMON SHARES(B) CLASS
- ------------------------------------------------------------ ---------------------- -------
<S> <C> <C>
The Northern Trust Company of New York 26,440,360(c) 6.8%
80 Broad Street Trust, Employee
19th Floor benefit plan
New York, NY 10004
</TABLE>
- --------------------------------------------------------------------------------
(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 in this table 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 3,769,126 Sears common shares held for other clients.
- --------------------------------------------------------------------------------
Further Information Concerning the Board of Directors
-----------------------------------------------------
The Board of Directors held six meetings during 1996. The committees of the
Board of Directors and the number of meetings held by each committee in 1996
were:
<TABLE>
<CAPTION>
NUMBER OF
COMMITTEE MEETINGS HELD
NAME DURING 1996
- ---------------------------------------------------- -------------
<S> <C>
Audit Committee 3
Compensation Committee 5
Executive Committee 0
Nominating Committee 4
Public Issues Committee 1
</TABLE>
As a result of a previously disclosed commitment, Richard Notebaert was
unable to attend one Board and one committee meeting that were both held on
October 9, 1996, resulting in his attending less than 75% of the Board and
committee meetings held during his partial-year term as a director in 1996.
Nominating Committee. The Nominating Committee recommends nominees for
election (i) to the Board of Directors, (ii) to committees of the Board, and
(iii) as executive officers. The Nominating Committee will consider nominating a
director candidate recommended by a shareholder if the shareholder submits the
recommendation to the Nominating Committee.
(Note concerning shareholder nominations: Shareholders may also nominate
candidates for election to the Board by complying with the nomination
requirements of the Company's By-Laws. The Company's By-Laws provide that a
shareholder must give the Company written notice in order to propose
business or make a nomination for director at a shareholder meeting.
Excerpts from the By-Laws containing these requirements are attached in
Appendix A. The deadline for shareholder nominations for director and
proposals for the 1997 annual meeting of shareholders was March 10, 1997.
The deadline for the 1998 annual meeting will be March 9, 1998.
Shareholders wishing to submit a nomination or proposal should review the
By-Law requirements on 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.)
9
<PAGE> 13
- --------------------------------------------------------------------------------
The Nominating Committee reviews and recommends to the Board of Directors
prior to the annual meeting each year: (a) the appropriate size and composition
of the Board; (b) a proxy statement and form of proxy; (c) policies and
practices on shareholder voting; (d) plans for the annual shareholders meeting;
(e) nominees for election to the Board; (f) persons to serve as proxy holders at
the annual meeting; (g) nominees for election to all committees of the Board;
and (h) nominees for election as executive officers of the Company. The
Nominating Committee is required to assess annually the performance of the
Board, evaluate the performance of the Chairman and Chief Executive Officer, and
review the management organization of the Company and succession plans for the
Chairman and Chief Executive Officer.
Audit Committee. The Audit Committee reviews the Company's annual financial
statements and other financial information to be included in the Company's 10-K
and annual report to shareholders. The Audit Committee reviews recommendations
made by the independent accountants and internal auditors on accounting methods
and internal controls. The Audit Committee makes recommendations to the Board on
the scope of audits. The Audit 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. The
Audit Committee has the power to conduct independent inquiries. The Audit
Committee recommends the appointment of independent accountants.
Compensation Committee. The Compensation Committee makes recommendations to
the Board on the compensation of directors and the administration of
compensation to be paid to the Company's officers. The Compensation Committee's
recommendations may cover the terms and conditions of employment of the
Company's officers. The Compensation Committee reviews the compensation of the
Chief Executive Officer. The Compensation Committee administers or oversees the
administration of all stock option and other benefit plans affecting officers'
direct and indirect remuneration.
Directors' Compensation and Benefits
-----------------------------------------------------
DIRECTOR COMPENSATION PROVISIONS
In 1995, significant changes were made to the directors' compensation and
benefits in order to align directors' interests more closely with shareholders'
interests. A portion of non-employee directors' annual cash compensation was
replaced with equity compensation, while the $30,000 annual cash retainer
continues to be paid to directors for serving on the Board. Fees previously paid
to a director for attending meetings of the Board and its committees were
eliminated, as well as the retainer formerly paid to a director for serving on a
committee. In addition, the Non-Employee Director Retirement Plan has been
terminated as to directors elected after November 8, 1995. The retirement
benefit for directors elected before that date has been frozen at its current
level of $30,000 per year.
Under the Non-Employee Director Stock Plan, each director receives an
annual equity retainer and a stock option grant. The equity retainer consists of
deferred shares valued at $30,000. Dividends on these deferred shares are
reinvested in additional deferred shares. Each director will receive his or her
vested deferred shares upon termination of service. The stock option grant is
valued at approximately $30,000 for each director. The exercise price equals the
fair market value of the underlying shares on the date of grant. The options are
fully exercisable one year from the date of grant.
The actual number of deferred shares and option shares granted depends upon
the price of Sears common shares on the date of grant. On May 9, 1996, each
director then in office received a grant of approximately 578 deferred shares
and an option to purchase 1,734 shares at an exercise price of $51.88, for the
year spanning the 1996 and 1997 annual meetings. Mr. Correll, who joined the
Board on August 14, 1996, received a prorated grant of approximately 433
deferred shares and an option to purchase 1,504 shares at an exercise price of
$44.88.
10
<PAGE> 14
- --------------------------------------------------------------------------------
This focus on equity compensation rather than cash reflects the Company's
efforts to align directors' compensation more closely with total shareholder
return. Along these lines, it is the Board's policy that by January 1, 2001 each
non-employee director who has served for five years own shares and deferred
common share equivalents with a value equal to five times the annual cash
retainer of $30,000 measured by the higher of cost or market.
The Chairs of the Audit, Compensation and Nominating Committees receive an
additional retainer of $5,000, and the Chair 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 the Company's common shares; (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. Subject
to certain restrictions, a director may transfer his or her plan funds between
accounts. Generally, the plan distributes funds to a director upon retirement,
either in a lump sum or over a period not to exceed ten years.
The Company also provides $150,000 of life insurance 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 $30,000 at the beginning of each
year thereafter until the coverage is reduced to zero.
11
<PAGE> 15
- --------------------------------------------------------------------------------
Executive Compensation
-----------------------------------------------------
The following Summary Compensation Table shows compensation information for
the CEO, Mr. Martinez, one former executive officer and four other executive
officers who were most highly compensated in 1996 (the "Named Officers").
Executive officers are designated by the Board of Directors.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- ------------------------- ---------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
YEAR SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/ PAYOUTS COMP.
NAME AND PRINCIPAL POSITION (A) ($) ($) ($)(B) ($)(C) SARS(#) ($)(D) ($)(E)
- -------------------------------- ---- --------- --------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez 1996 1,100,000 1,890,900 422,651 -- 33,870 -- 6,300
Chairman, President & CEO 1995 1,023,915 1,005,980 166,825 -- 222,134 3,033,583 6,468
1994 931,250 1,119,496 29,376 -- -- -- 6,468
John H. Costello 1996 500,000 668,500 93,700 -- 7,740 -- 6,300
Senior Executive Vice
President, 1995 485,000 408,273 55,559 -- 80,595 1,280,340 6,468
Gen. Mgr. Marketing Div.
Alan J. Lacy 1996 440,000 588,280(f) 1,171 -- 6,876 -- 6,300
Executive Vice President & 1995 425,000 355,765 22,630 476,250(g) 131,579 414,634 32,286
Chief Financial Officer
Robert L. Mettler 1996 675,000 874,125 1,848 -- 17,838 -- 6,300
President, Merchandising- 1995 660,000 277,794 1,202 -- 98,154 1,875,281 6,468
Full-Line Stores
Allan B. Stewart 1996 465,000 602,175 2,162 -- 7,056 -- 6,300
President, Stores- 1995 455,000 291,155 3,180 -- 93,273 1,293,697 6,468
Full-Line Stores
Marvin M. Stern 1996 475,000 617,120 2,162 -- 6,840 -- 6,300
Former President, Home Stores 1995 475,000 199,928 3,180 -- 52,300 1,322,306 6,468
</TABLE>
-------------------
(a) Messrs. Costello, Lacy, Mettler, Stewart and Stern were not executive
officers of the Company during the year 1994, and, accordingly no
information is given with respect to their compensation for that year.
(b) Represents certain tax gross-up payments, tax benefit rights payments
and/or a portion of interest on deferred compensation.
(c) Restricted stock awards are valued at Sears closing stock price on the
date of grant. Dividends are paid on restricted shares at the same
rate paid to all shareholders. While no grants were made in 1996, the
above executives held the following shares of restricted stock valued
at December 28, 1996 at a fair market value for Sears common shares of
$47.38 per share.
<TABLE>
<CAPTION>
# OF SHARES MARKET VALUE AS OF 12/28/96
----------- ---------------------------
<S> <C> <C>
Mr. Martinez 48,817 $2,312,949
Mr. Costello 0 $ 0
Mr. Lacy 13,198 $ 625,321
Mr. Mettler 0 $ 0
Mr. Stewart 0 $ 0
Mr. Stern 5,675 $ 268,882
</TABLE>
Because the amounts listed above in this footnote are required to
reflect restricted stock holdings as of 1996 fiscal year-end, such
amounts include adjustments resulting from the spin-offs of Allstate
Corporation and Dean Witter, Discover & Co.
(d) Long-Term Incentive awards were paid in March 1996. These awards were
earned under the 1993-95 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 the total payout in 1993, 1994, and
1995 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- ---------- ----------
<S> <C> <C> <C>
Mr. Martinez $809,101 $1,116,795 $1,107,687
Mr. Costello 357,052 473,906 449,382
Mr. Lacy 0 20,846 393,788
Mr. Mettler 631,875 631,875 611,531
Mr. Stewart 436,056 436,056 421,585
Mr. Stern 438,446 445,117 438,743
</TABLE>
Because Mr. Lacy's employment with the Company began on December 15,
1994, he was not eligible for the Long-Term Incentive Plan in 1993 and
had prorated eligibility in 1994.
(e) These amounts represent the Company's matching contribution under the
Profit Sharing Fund and under the Company's nonqualified Management
Supplemental Deferred Profit Sharing Plan. For Mr. Lacy, the amount
also includes reimbursements for relocation expenses.
(f) Pursuant to an equity swap feature added to the Company's annual and
long-term incentive plans in November 1995, Mr. Lacy has elected to
swap 25% of this amount ($147,707) for restricted stock of the Company
having a fair market value on February 28, 1997 (the date of grant) of
$50.53 and vesting on February 28, 2000. In exchange for electing to
receive restricted stock in lieu of cash, a 20% premium ($29,414) will
be added to that portion of Mr. Lacy's bonus that he has elected to
swap for restricted stock.
(g) Excludes 9,796 shares from anti-dilution adjustments resulting from
the Allstate Corporation spin-off occurring subsequent to the grant
date of Mr. Lacy's restricted stock awards.
- --------------------------------------------------------------------------------
12
<PAGE> 16
- --------------------------------------------------------------------------------
Stock Options
-----------------------------------------------------
The following table is a summary of all stock options granted during 1996.
Individual grants are listed separately for each Named Officer. In addition,
this table shows the estimated present value of each grant as of the date the
option was granted.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
---------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION PRESENT
NAME GRANTED IN 1996 PRICE DATE VALUE(B)
- -------------------------------------- ------------ ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez 33,870 4.53% $49.63 03/13/06 $555,468
John H. Costello 7,740 1.04% $49.63 03/13/06 $126,936
Alan J. Lacy 6,876 0.92% $49.63 03/13/06 $112,766
Robert L. Mettler 13,110 1.75% $49.63 03/13/06 $215,004
4,728(c) 0.63% $50.00 01/31/05 $ 77,681
Allan B. Stewart 7,056 0.94% $49.63 03/13/06 $115,718
Marvin M. Stern 6,840 0.91% $49.63 03/13/06 $112,176
</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 benefits rights but do include limited
stock appreciation rights which become exercisable in certain cases
upon a change in control.
(b) These values were calculated using the Black-Scholes option pricing
model applied as of the grant date. The assumptions used to calculate
these values were as follows: dividend yield -- 1.86%; expected
volatility -- 28%; risk-free interest rate -- 6.23%; an option
exercise date 6 years from the date of grant (the expected life of the
option). The actual value realized may vary significantly from these
estimated values and will ultimately depend upon the excess of the
stock price over the exercise price on the date the option is
exercised.
(c) 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 1996 and the
number of shares and the value of grants outstanding as of December 28, 1996 for
each Named Officer.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND 12/28/96 OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT 12/28/96 12/28/96(A)
SHARES ----------------------------- ---------------------------
ACQUIRED VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ON EXERCISE(#) REALIZED($) (# OF SHARES) (# OF SHARES) ($ VALUE) ($ VALUE)
- ----------------------- -------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez -- -- 293,561 576,529 7,234,098 15,045,832
John H. Costello -- -- 136,153 61,470 3,408,364 974,191
Alan J. Lacy -- -- 43,859 94,596 887,509 1,775,064
Robert L. Mettler 12,000(b) 363,600 174,064 188,493 4,501,226 4,089,999
Allan B. Stewart -- -- 120,823 69,238 3,115,126 1,099,376
Marvin M. Stern -- -- 78,412 41,707 2,083,452 680,149
</TABLE>
-------------------
(a) Value of unexercised, in-the-money options based on a fair market
value of a Sears common share of $47.38 as of December 28, 1996.
(b) Mr. Mettler acquired these shares by tendering shares in lieu of cash
in exercising an option. In accordance with the terms of the option,
by tendering shares instead of cash he received a new option to
replace the shares tendered, as shown in the "Option/SAR Grants in
1996" table above (footnote (c)).
- --------------------------------------------------------------------------------
13
<PAGE> 17
- --------------------------------------------------------------------------------
Long-Term Performance Plan
-----------------------------------------------------
The performance criteria in the Company's Long-Term Performance Plan
measure increases in customer satisfaction, associate satisfaction, and the
Company's financial performance over a multi-year performance cycle. These
criteria are designed to give participants incentives to make Sears a
"Compelling Place to Shop, Work and Invest." The actual payout that may be
earned under the current performance cycle (1996-97) is based on a weighted
average achievement over the cycle compared to goals established at the
beginning of the cycle for these performance measures.
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996 (TO BE PAID IN MARCH 1998)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF SHARES, PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS(A)
UNITS, OR OTHER OTHER PERIOD UNTIL -------------------------------------
NAME RIGHTS(#) MATURATION OR PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
- ------------------ ----------------- ----------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez -- 1/1/96 through 12/31/97 $411,469 $822,938 $1,234,406
John H. Costello -- 1/1/96 through 12/31/97 $141,328 $282,656 $ 423,984
Alan J. Lacy -- 1/1/96 through 12/31/97 $124,453 $248,906 $ 373,359
Robert L. Mettler -- 1/1/96 through 12/31/97 $192,188 $384,375 $ 576,563
Allan B. Stewart -- 1/1/96 through 12/31/97 $131,484 $262,969 $ 394,453
Marvin M. Stern -- 1/1/96 through 12/31/97 $ 89,063 $178,125 $ 267,188
</TABLE>
-------------------
(a) Awards are in the form of a cash incentive, based on achievement of
performance goals. Target awards are set for participants at the
beginning of each performance cycle based on target goals and a
specified percentage of estimated aggregate salary during the
performance cycle. Actual awards are based on the achievement of goals
and the individuals' actual salary earned during the cycle to the
extent permitted by appropriate tax authority. The maximum award for a
participant is 150% of target.
- --------------------------------------------------------------------------------
Pension Plan Table
-----------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 5 10 15 25 35
------------ - -- -- -- --
<S> <C> <C> <C> <C> <C>
$1,000,000 $74,100 $149,600 $230,800 $ 392,900 $ 565,500
- -------------------------------------
$1,650,000 122,800 248,100 382,900 651,900 938,300
- -------------------------------------
$2,300,000 171,600 346,600 535,000 910,900 1,311,000
- -------------------------------------
$2,950,000 220,300 445,000 687,100 1,169,900 1,683,800
- -------------------------------------
$3,600,000 269,100 543,500 839,200 1,429,000 2,056,600
- -------------------------------------
</TABLE>
The Company maintains basic and supplemental retirement plans that, subject
to vesting conditions, provide retirement benefits for all full-time and certain
part-time United States employees of the Company or its subsidiaries.
Annual retirement benefits under these retirement plans are currently based
upon: (i) credited years of service, (ii) a multiplication factor corresponding
to each credited year of service (as set forth in the retirement plans), and
(iii) the average annual cash compensation of the individual's highest five
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 basis of computing retirement benefits for years of service
14
<PAGE> 18
- --------------------------------------------------------------------------------
on and after January 1, 2000. After that date, retirement benefits will be based
on the individual's compensation each year instead of his or her final average
annual compensation.
In general, only salary and annual bonus amounts as reflected in the
Summary Compensation Table on page 12 are considered in determining pension
benefits.
Annual retirement benefits are generally payable monthly for life. Benefits
accrued through December 31, 1988 are reduced by a portion of the participant's
estimated social security benefits.
The Pension Plan Table shows annual retirement benefits that would be
payable based upon various assumptions as to final average annual compensation
and credited years of service. It assumes retirement on December 31, 1997 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, 1996: Martinez (14), Costello (3),
Lacy (2), Mettler (4), Stewart (32) and Stern (8). 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
Under his employment agreement with the Company, the term of which expired
on December 1, 1995, Mr. Martinez was granted a stock option for 394,569 shares,
which vests on August 31, 1997. This option is forfeited if Mr. Martinez resigns
or his employment is terminated for cause prior to August 31, 1997. If his
employment is terminated other than for cause prior to August 31, 1997, the
option will become exercisable immediately. If Mr. Martinez dies or becomes
disabled prior to August 31, 1997, a prorated portion of the option will become
exercisable. This option is also subject to the terms described below under
"Certain Stock Option and Restricted Share Provisions."
Under Mr. Martinez's employment agreement, he was granted restricted shares
on September 1, 1992, to become unrestricted in 20% increments each September 1
thereafter. Currently, 32,880 shares from this grant remain restricted. These
restricted shares are forfeited if Mr. Martinez resigns or his employment is
terminated for cause prior to September 1, 1997. If his employment is terminated
without cause or he dies or becomes disabled prior to September 1, 1997, these
restricted shares become unrestricted immediately. These restricted shares are
also subject to the terms described below under "Certain Stock Option and
Restricted Share Provisions."
Mr. Martinez's employment agreement provided that his service would vest on
September 1, 1992 for pension purposes. It also stated that he would be credited
on retirement with an additional 10 years of service under the Company's
retirement plans. This additional retirement benefit is fully vested.
Under his employment agreement with the Company, the term of which expired
on March 31, 1996, Mr. Costello will be credited on retirement with an
additional 10 years of service under the Company's retirement plans if he
remains employed by the Company through March 31, 1998. This credit is forfeited
if Mr. Costello resigns or his employment is terminated with cause prior to
March 31, 1998. If Mr. Costello's employment is terminated without cause or if
he dies or becomes disabled prior to March 31, 1998, he will receive a prorated
portion of this additional pension benefit.
Under his employment agreement with the Company, the term of which expired
on February 14, 1996, Mr. Mettler was granted a stock option for 105,219 shares,
which vests on February 14, 1998. This option is
15
<PAGE> 19
- --------------------------------------------------------------------------------
forfeited if Mr. Mettler resigns or his employment is terminated for cause prior
to February 14, 1998. If Mr. Mettler's employment is terminated other than for
cause or he dies or becomes disabled prior to February 14, 1998, a prorated
portion of the option will become exercisable. This option is also subject to
the terms described below under "Certain Stock Option and Restricted Share
Provisions."
Mr. Mettler's employment agreement provided that he will be credited on
retirement with an additional six years of service under the Company's
retirement plans if he remains employed by the Company through February 14,
2003. This benefit will vest 50% on February 14, 1998 and an additional 10% each
year thereafter. This benefit is forfeited if Mr. Mettler resigns or his
employment is terminated with cause prior to February 14, 1998. If Mr. Mettler's
employment is terminated without cause or if he dies or becomes disabled prior
to February 14, 1998, he will receive a prorated portion of this benefit. Mr.
Mettler's employment agreement also provides that his pension benefits will not
be less than $125,000 per year if he remains employed with the Company through
February 14, 2003. If he is terminated without cause, dies or becomes disabled
prior to February 14, 2003, this guaranteed minimum will be prorated.
Mr. Stern and the Company entered into an agreement on December 26, 1996
under which he resigned as an executive officer of the Company and agreed to
retire from the Company on July 15, 1998. The Agreement provides that for 1997
his salary will be $300,000 and his annual bonus will be $210,000; for the
portion of 1998 covered by the agreement his salary will be $175,000 and his
annual bonus will be $122,500. Mr. Stern's agreement also requires him not to
work for a competitor of the Company for one year after his retirement.
OFFICERS' AGREEMENTS
Messrs. Martinez, Costello, Lacy, Mettler and Stewart have each entered
into an agreement that requires each of them to maintain the confidentiality of
information concerning the Company's business and not to work for a competitor
of the Company for two years (three years for Mr. Martinez) after termination of
employment. In consideration of these requirements, if any of them are
involuntarily terminated from the Company for any reason other than willful
misconduct or dishonesty, he will receive the following benefits (to the extent
deductible on the Company's federal tax returns):
(i) two years of salary continuation (three years for Mr. Martinez),
which includes annual base pay and annual bonus target in the year of the
termination;
(ii) all Company benefits during the two-year continuation period
(three years for Mr. Martinez); and
(iii) continued vesting of stock options during the two-year
continuation period (three years for Mr. Martinez).
After the first year, salary continuation payments will be reduced by the amount
of any compensation and benefits the officer receives from other employment.
CERTAIN STOCK OPTION AND RESTRICTED SHARES PROVISIONS
Following is a description of certain provisions of the stock options and
restricted shares held by the Named Officers as of January 31, 1997. All of
these options and restricted shares were issued under the 1994 Employees Stock
Plan or the 1990 Employees Stock Plan.
Stock Options
Upon termination of employment, each Named Officer retains the right to
exercise any options then vested for three additional months, as long as the
option has not expired. Upon normal retirement (age 65) or Company-approved
early retirement, each Named Officer retains the right to exercise any options
then vested for a longer period -- two years under some grants, five under
others -- as long as the option has not expired.
16
<PAGE> 20
- --------------------------------------------------------------------------------
If the Company undergoes a change in control, all unvested options will
vest immediately, and the Named Officer will have stock appreciation rights with
respect to the options for 60 days following the change in control.
If the Company merges with another entity or enters into certain other
extraordinary transactions, the Company may terminate all outstanding options,
whether vested or unvested. However, in the event of such a transaction, the
Company must make one of three equitable adjustments:
(i) replace the options with equivalent options for shares in the
new entity;
(ii) accelerate the vesting of options so that they are exercisable
prior to the transaction; or
(iii) pay in cash the difference between the market price and the
option price of the stock underlying the options -- whether vested or
unvested -- on the date of the transaction.
Restricted Shares
Each Named Officer that holds restricted shares (see footnote (c) in the
Summary Compensation Table on page 12) may exchange them for unrestricted shares
upon
(i) normal retirement (age 65),
(ii) early retirement with Company approval after age 60,
(iii) death,
(iv) total and permanent disability, or
(v) a change in control of the Company.
Under a policy of the Compensation Committee, a holder of restricted shares who
retires before age 60 is permitted to exchange a prorated portion of the
restricted shares for unrestricted shares.
In all other cases, the Named Officer will forfeit the restricted shares
upon termination of his employment (unless an individual arrangement applies,
such as Mr. Martinez's employment agreement, described above).
Report of the Compensation Committee
-----------------------------------------------------
As Sears aggressively continues the transformation begun over the past few
years, its focus is to create superior total shareholder return. The
Compensation Committee has established a charter and compensation philosophy
designed to reward and support superior performance.
- At-Risk Performance-Based Pay
Executives and managers will have more pay delivered through variable pay
plans. Those plans require achievement of performance targets which are
established to create shareholder value. At-risk incentive plans will be
increased as a percentage of total compensation.
- Shareholder Alignment
Pay for executives should place their interests in line with shareholder
interests. We will deliver more pay to executives in the form of Sears
shares, 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.
17
<PAGE> 21
- --------------------------------------------------------------------------------
- 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.
- 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 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 are
designed to attract achievement-oriented associates who demonstrate
individual and team commitment to superior performance and improved
shareholder value.
The Compensation Committee is composed of independent, non-employee
directors. The Committee helps the Board establish executive compensation
philosophy. The Committee recommends the terms and conditions of employment for
executive officers and administers the compensation programs 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.
The Committee looks at other companies' compensation practices to determine
the competitiveness of the Sears executive compensation program. Comparison
companies are selected based on their total shareholder return, the similarity
of their lines of business to that of Sears, or their undergoing a significant
transformation, like Sears. The comparison group includes not only firms that
compete in the Company's primary lines of business, but also those with which
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 line-of-business peer
group. Although some companies are in both groups, the compensation peer group
is not identical to the companies included in the S&P Retail Store Composite
Index used for the Performance Graph on page 21.
BASE SALARY
The Committee reviews the base salaries of executive officers annually and
evaluates management's recommendations based on the results achieved by each
executive officer, as well as competitive salary practices. Base salary
increases for 1996 were targeted at below market levels as the annual incentive
opportunity has increased, putting a greater proportion of annual cash
compensation at risk.
ANNUAL INCENTIVE
In 1996, the Board approved and implemented annual incentives designed to
provide rewards at the 60th percentile of peer group compensation if net income
improved a targeted amount over the prior year. For officers with Company-wide
responsibilities, the entire award was based on Company net income. For those in
business units, one-half of the award was based on Company net income, with the
remainder based on business-unit net income.
Target award levels were assigned for each officer based on competitive
practice. Actual awards could vary up or down from the target award depending on
actual Company and business-unit performance. Furthermore, 20% of the actual
award amount is not received unless the officer has successfully accomplished
his or her personal objectives established at the beginning of the year. Any
awards to officers that exceed 200% of the target award are paid in restricted
Sears common shares. 1996 was the first year of a phased transition for the
annual incentive from the 50th to the 75th percentile of the peer group by 1998.
However, base salary increases
18
<PAGE> 22
- --------------------------------------------------------------------------------
will be held back to below-peer-group levels during this transition. Also
beginning in 1996, officers can elect to receive all or a portion of their
annual 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 PERFORMANCE PLAN
Officers participating in this plan receive cash awards over three-year
performance cycles. Target award levels are set at the competitive median of the
peer group, and awards are received if Sears achieves certain performance
targets. The start of the 1995-97 performance cycle was postponed until 1996,
when a new set of criteria for measuring performance could be fully implemented.
For the period 1996-97, the Committee established a new strategic performance
measurement index called the Total Performance Indicators. This index measures
progress towards making Sears a "Compelling Place to Shop, Work and Invest."
Beginning in 1996, officers may elect to receive all or a portion of their
long-term 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 executive compensation for many
years. Stock option awards are targeted at the median competitive level. Options
are granted with an exercise price equal to the market price on the date of the
grant. Prior to 1996, options were granted every other year and expired after
twelve years. Beginning in 1996, the Company changed to annual option grants at
a proportionately reduced level with a three-year vesting and a ten-year
expiration.
STOCK OWNERSHIP GUIDELINES
In keeping with Sears philosophy of developing a mutual commitment between
shareholders and management, in 1996 the Committee approved minimum stock
ownership guidelines for approximately 200 members of the management team. The
minimum 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 the minimum levels.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Federal tax law limits the Company's tax deduction to $1 million per person
for annual compensation paid to the first five officers listed in the Summary
Compensation Table on page 12, 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 believes
that Sears must attract, retain and reward the executive talent necessary to
maximize the return to shareholders, and that the loss of a tax deduction may be
a necessary and desirable trade-off 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
1996 base salary until after retirement.
CEO COMPENSATION
Mr. Martinez's salary, annual incentive, stock options and long-term
performance plan grants follow the policies described above. Amounts paid and
granted under these plans are disclosed in the Summary Compensation Table on
page 12.
19
<PAGE> 23
- --------------------------------------------------------------------------------
Mr. Martinez's base salary increased from $975,000 to $1,100,000 upon his
promotion to Chairman and CEO of the Company on August 8, 1995. Because that
increase occurred in the latter half of 1995, Mr. Martinez did not receive an
increase in base salary during 1996. However, Mr. Martinez did receive an
increase of 2.3% from $1,100,000 to $1,125,000 on January 1, 1997. This increase
was held below the market level for base salary as the Company moved toward
above-market levels for at-risk pay, as described above. At the same time, in
determining this increase, the Committee recognized Mr. Martinez's significant
impact in transforming the Company, and the dramatic improvement in the
Company's 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 1996 annual incentive award was based on a pre-approved
target level of improvement in Company net income 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 1996, Mr. Martinez received a grant of stock options targeted at the
median competitive level, which resulted in an award of options covering 33,870
shares.
CONCLUSION
The Compensation Committee's goal is to have the design and administration
of Sears executive compensation programs more closely align the interests of the
Company's executive officers with those of the shareholders and provide
competitive compensation based on results to support the transformation efforts
which are underway to make Sears a "Compelling Place to Shop, Work and Invest."
COMPENSATION COMMITTEE:
<TABLE>
<S> <C>
Clarence B. Rogers, Jr. (Chairman) Donald H. Rumsfeld
Alston D. Correll, Jr. Dorothy A. Terrell
Michael A. Miles
</TABLE>
20
<PAGE> 24
- --------------------------------------------------------------------------------
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 1991 THROUGH DECEMBER 1996
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P
(FISCAL YEAR COVERED) SEARS S&P 500 RETAIL
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 125.31 107.69 117.10
1993 196.24 118.46 112.77
1994 176.02 120.00 103.29
1995 299.42 165.38 115.33
1996 359.15 201.94 134.24
</TABLE>
* Assumes $100 invested on the last day of December, 1991. Dividends are
reinvested at the frequency with which they are paid. The above graph accounts
for the spin-offs of Dean Witter, Discover & Co. (June 30, 1993) and The
Allstate Corporation (June 30, 1995) as though they were cash distributions
which were reinvested in common shares of the Company.
21
<PAGE> 25
- --------------------------------------------------------------------------------
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------
During 1996, 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: Alston D. Correll, Jr., James W. Cozad,
William E. LaMothe (who retired at the 1996 annual meeting), Michael A. Miles,
Clarence B. Rogers, Jr., Donald H. Rumsfeld and Dorothy A. Terrell. There were
no interlocks with other companies within the meaning of the SEC's proxy rules
during 1996.
Item 2: Approval of Auditors
-----------------------------------------------------
Item 2 is the recommendation of the Audit Committee that Deloitte & Touche
LLP be appointed auditors for 1997, which is being presented to shareholders for
approval. Representatives of Deloitte & Touche LLP will be present at the
meeting. They 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 1997 AS PROPOSED IN ITEM 2.
Item 3: Proposal to Adopt Sears Employee Stock Purchase Plan
-----------------------------------------------------
Item 3 is a proposal to adopt the Sears Employee Stock Purchase Plan. The
Board believes that the adoption of an Employee Stock Purchase Plan is in the
best interests of the Company. By providing the Company's employees with an
attractive opportunity to purchase Sears common shares, the Board believes that
participating employees will, as shareholders, be more likely to think and act
like owners. In addition, in order to attract and retain quality employees,
Sears must provide a competitive benefits package. An Employee Stock Purchase
Plan is an attractive addition to Sears existing employee benefits.
For these reasons, the Board approved the Sears Employee Stock Purchase
Plan in March 1997, subject to adoption by the shareholders. The Plan provides
eligible employees the opportunity to purchase Sears common shares at a discount
through payroll deductions. The Company has designed the Plan so that
participating employees and the Company receive favorable tax treatment, as
described further below. The Plan will be administered by the Administrative
Committee for Sears Benefit Plans comprised of certain senior officers of the
Company (the "Committee").
Eligible employees may elect on a quarterly basis to have up to 10% of
their compensation (including base pay, annual bonus and commissions) deducted
and paid into the Plan throughout the upcoming quarter, subject to the annual
limit described below. An employee may terminate his or her participation any
time before the end of the quarter and receive a refund in cash of amounts
deducted for that quarter. At the end of the quarter, the amount deducted is
automatically applied toward the purchase of Sears common shares at a discounted
price (the "Discount Price"), which is the lesser of:
(i) 85% of the fair market value of the shares on the first day of the
quarter (the "Offer Date"), or
(ii) 85% of the fair market value of the shares on the date of the
purchase of shares, which is the last day of the quarter (the "Purchase
Date").
No employee may purchase shares having an aggregate market value of more than a
stated maximum amount, even if that amount is within the 10% deduction limit
mentioned above. The stated maximum is initially $16,000, and is indexed to
increase proportionately with increases in the minimum compensation level for
22
<PAGE> 26
- --------------------------------------------------------------------------------
participation in Sears Deferred Compensation Plan (which is now $160,000). In no
event can the stated maximum amount exceed $25,000.
Shares for the Plan will be purchased in the open market (in accordance
with SEC regulations for open-market purchases), unless the Company's Chief
Financial Officer deems it necessary or advisable to use previously acquired
treasury shares or authorized and unissued shares. A total of 10,000,000 shares,
which would represent approximately 2 1/2% of the total shares currently
outstanding, may be sold under the Plan.
All active full-time and part-time employees of Sears or any of its
subsidiaries that have adopted the Plan are eligible to participate in the Plan
once they have been employed for 60 days. However, the Board or the Committee
can, without further shareholder approval, terminate the Plan at any time, or
amend the Plan to (i) suspend the Plan temporarily, or (ii) exclude any or all
of the following classes of employees from participating in the Plan: employees
who have been employed for less than two years, employees who are part-time
(less than 20 hours a week or 5 months a year), or highly compensated employees.
If adopted by shareholders, the Plan will commence on July 1, 1997 and
terminate on June 30, 2002 (unless earlier terminated by the Board).
The foregoing is merely a summary of the principal aspects of the Plan. The
Plan is set forth in its entirety in Appendix B to this proxy statement, and
shareholders should refer to the Plan for more complete and detailed
information.
Federal Income Tax Consequences. The Company expects the Plan to be an
"employee stock purchase plan" under the Internal Revenue Code. Assuming that is
the case, employees who participate in the Plan will not recognize income (and
the Company will not receive any deduction) at the time they purchase shares,
even though the employees will receive the benefit of the Discount Price.
Employees will, however, recognize income when they sell or dispose of the
shares.
The tax consequence to an employee of selling or disposing of the shares
generally depends on how long he or she has held the shares. If an employee
sells or disposes of the shares within two years after the Offer Date, he or she
will recognize ordinary income to the extent the fair market value of the shares
on the Purchase Date exceeded the Discount Price. Any additional gain is capital
gain. The Company may take a tax deduction in the amount of any ordinary gain
realized by the employee under this scenario.
In contrast, if the employee sells or disposes of the shares after the
two-year period, he or she will recognize ordinary income only to the extent of
15% of the fair market value of the shares on the Offer Date (not to exceed the
gain realized in the sale or disposition). Any additional gain is capital gain.
The Company is not entitled to any tax deduction under this scenario.
The foregoing is only a summary of federal income tax consequences to the
Company and participating employees, and does not cover the tax consequences
that might arise in every individual circumstance.
The closing price of Sears common shares on March 18, 1997, as reported in
a summary of composite transactions for stock listed on the New York Stock
Exchange, was $54 1/4.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS ADOPT THE SEARS EMPLOYEE STOCK
PURCHASE PLAN AS PROPOSED IN ITEM 3.
23
<PAGE> 27
- --------------------------------------------------------------------------------
Item 4: Shareholder Proposal
-----------------------------------------------------
CLASSIFIED BOARD
Item 4 is a proposal submitted by John J. Gilbert, 29 East 64th Street, New
York, N.Y. 10021-7043, Margaret R. Gilbert and John J. Gilbert as trustees, 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 40.6%, 12,532* owners of 112,206,319 shares, were cast
in favor of this proposal. The vote against included 28,803,671* 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.
Ameritech is one of the latest to end theirs.
A few years ago my resolution on the subject was withdrawn when the
Westinghouse directors agreed to end their stagger system. At the
Lockheed-Martin merger the stagger system was ended, and also at a special
meeting of First Commerce Corporation in 1995. Further, Alleghany 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.
In the merger of Nynex into Bell Atlantic the annual election of directors,
instead of the stagger system that Nynex had, will be adopted.
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.
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 controlling French insurance company not wanting it, they now do not
have a staggered board.
Orange and Rockland Utility Company had a terrific time with the stagger
system and its 80% clause to recall a director. The chairman was involved in a
scandal affecting the company. Not having enough votes the meeting to get rid of
the chairman had to be adjourned. Finally, at the adjourned meeting enough votes
were counted to recall him.
If you agree, please mark your proxy for this resolution; otherwise, it is
automatically cast against it, unless you have marked to abstain.
- ------------------
*Figures inserted by the Company at the shareholders' request.
24
<PAGE> 28
- --------------------------------------------------------------------------------
THE COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that shareholders vote "against" this
proposal. The Board reviews its classified-board structure from time to time,
and believes that a classified board is still in the best interests of the
Company and its shareholders at this time.
In 1988, the shareholders of the Company voted in favor of creating a
classified Board of Directors. The directors are grouped into three classes
approximately equal in number, and serve staggered three year terms. Thus, each
year only about one third of the Board is up for election. This system ensures
continuity and experience among the directors.
Board classification ensures that the majority of directors at any given
time will have experience in the business and affairs of the Company. The Board
believes that such a board is best situated to maximize long-term shareholder
value. For instance, continuity on the board is integral to developing,
refining, and executing a long-term strategic plan, a process that often takes
years. Moreover, the Board believes that a board with a historical perspective
of the Company is better positioned to make fundamental decisions that are best
for the Company--decisions on strategic acquisitions or dispositions,
significant capital commitments, and careful and consistent application of
financial and other resources.
The Board believes that an abrupt change of control could disrupt the
Company in achieving its long-term strategic goals, and thus might deprive the
shareholders of the opportunity to realize the full value of their investment. A
classified board prevents such an abrupt change of control. At the same time,
the shareholders have the power to propose and elect alternate nominees for the
class of directors to be elected each year, and thus influence the Board's
composition. The Board believes that a classified board thus remains accountable
to its shareholders.
For all these reasons the Board believes that a classified board is still
in the best interests of the Company and its shareholders.
Declassifying the Board would require an amendment to the Company's
Certificate of Incorporation. Under New York law, an amendment to a company's
certificate of incorporation must first be approved by its board and then
submitted to the shareholders. 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 that it
recommend to the shareholders the amendment to eliminate the classified board.
Further, under the Company's Certificate, board classification cannot be
eliminated unless the amendment is approved by 75% of the shares entitled to
vote. The proposal itself, however, requires for adoption only the approval of a
majority of the votes cast at the annual meeting.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL AS SET FORTH IN ITEM 4.
The number of voting shares held by any of the above proponents will be
furnished, orally or in writing as requested, promptly upon oral or written
request.
Shareholder Proposals for 1998 Annual Meeting
-----------------------------------------------------
Proposals which shareholders intend to present at the 1998 annual meeting
of shareholders must be received by the Company no earlier than February 7, 1998
and no later than March 9, 1998 to be presented at the meeting. To be eligible
for inclusion in next year's proxy statement under the SEC's proxy rules,
shareholder proposals must be received by the Company by November 19, 1997.
25
<PAGE> 29
- --------------------------------------------------------------------------------
Certain Transactions
-----------------------------------------------------
The Northern Trust Company maintains ongoing banking relationships,
including credit lines, with the Company and various of its subsidiaries, in
addition to performing services for the Company's Profit Sharing Trust. In 1996,
revenues received by Northern Trust for loan transactions, cash management
activities, custodian, securities lending and other services for all such
entities were approximately $2,041,208.
Unless 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 1996 during which any such person did not serve in such capacity.
Other Matters
-----------------------------------------------------
Some of the officers and other employees of the Company and its
subsidiaries may solicit proxies by personal interview, telephone and telegram,
as well as by mail. None of these individuals will receive special compensation
for these services, which will be performed in addition to their regular duties.
The Company has also made arrangements with brokerage firms, banks, nominees and
other fiduciaries to forward proxy materials for shares held of record by them
to the beneficial owners. 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
$16,500, 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.
26
<PAGE> 30
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.
A-1
<PAGE> 31
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
1 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 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.
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.
* * *
A-2
<PAGE> 32
APPENDIX B
SEARS, ROEBUCK AND CO.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Sears, Roebuck and Co. 1997 Employee Stock
Purchase Plan (the "Plan") is to provide employees of Sears, Roebuck and Co., a
New York corporation (the "Company"), and its Subsidiary Companies (as defined
below) added incentive to remain employed by such companies and to encourage
increased efforts to promote the best interests of such companies by permitting
eligible employees to purchase common shares, par value $0.75 per share, of the
Company ("Common Shares") at below-market prices. The Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of the Plan, the
term "Subsidiary Companies" shall mean all corporations which are subsidiary
corporations (within the meaning of Section 424(f) of the Code) and of which the
Company is the common parent. The Company and its Subsidiary Companies that,
from time to time, adopt the Plan are sometimes hereinafter called collectively
the "Participating Companies."
2. Eligibility. Participation in the Plan shall be open to each employee of
the Participating Companies who has been continuously employed by the
Participating Companies for at least sixty days (an "Eligible Employee"). No
right to purchase Common Shares hereunder shall accrue under the Plan in favor
of any person who is not an Eligible Employee as of the first day of a Purchase
Period (as defined in Section 3). Notwithstanding anything contained in the Plan
to the contrary, no Eligible Employee shall acquire a right to purchase Common
Shares hereunder if (i) immediately after receiving such right, such employee
would own 5% or more of the total combined voting power or value of all classes
of stock of the Company or any Subsidiary Company (including any stock
attributable to such employee under Section 424(d) of the Code), or (ii) for any
calendar year such right would permit such employee to purchase Common Shares
under any employee stock purchase plan of the Company and its Subsidiary
Companies which, when aggregated, would have a fair market value (as determined
on the first day of the Purchase Period (as hereinafter defined)) in excess of
the greater of (i) $16,000 or (ii) 10% of the compensation limit set forth in
Section 401(a)(17) of the Code, all determined in the manner provided by section
423(b)(8) of the Code; provided, however, that in no event shall the aggregate
fair market value of all Common Shares so purchased for any calendar year exceed
$25,000. In addition, the number of Common Shares which may be purchased by any
Eligible Employee during any Purchase Period shall not exceed the whole number
of Common Shares determined by dividing 10% of the Eligible Employee's
compensation for the Purchase Period, determined on the first day of the
Purchase Period, by 85% of the fair market value (determined as described in
Section 5) of a Common Share on the first day of the Purchase Period.
3. Effective Date of Plan; Purchase Periods. The Plan shall become
effective on July 1, 1997 or on such later date as may be specified by the Board
of Directors (the "Board") of the Company or the Committee (as defined in
Section 11). The Plan shall cease to be effective unless, within 12 months
before or after the date of its adoption by the Board, it has been adopted by
the shareholders of the Company at a duly-called meeting of such shareholders.
A "Purchase Period" shall consist of the three month period, beginning on
each July 1, October 1, January 1, and April 1, each commencing on or after the
effective date and prior to termination of the Plan.
4. Basis of Participation. (a) Payroll Deduction. Each Eligible Employee
shall be entitled to enroll in the Plan as of the first day of any Purchase
Period which begins on or after such employee has become an Eligible Employee.
To enroll in the Plan, an Eligible Employee shall execute and deliver a
payroll deduction authorization (the "Authorization") to the Company or its
designated agent at the time and in the manner specified by the Company. The
executed Authorization shall become effective on the first day of the Purchase
Period following the day of delivery thereof to the Company or its designated
agent. Each Authorization shall direct that payroll deductions be made by the
employee's employer for each payroll period during which the employee is a
participant in the Plan. The amount of each payroll deduction specified in an
Authorization for each such payroll period shall be a whole percentage amount,
unless otherwise determined by the Committee to be a whole dollar amount, in
either case not to exceed 10%, or such lesser percentage as may be determined by
the Committee, of the participant's compensation for the Purchase Period,
determined on the first day of the Purchase Period (before withholding or other
deductions), paid to him or her by any of the Participating Companies.
B-1
<PAGE> 33
Payroll deductions (and any other amount paid under the Plan) shall be made
for each participant in accordance with such participant's Authorization until
such participant's participation in the Plan terminates, such participant's
Authorization is revised or the Plan terminates, all as hereinafter provided.
A participant may change the amount of his or her payroll deduction
effective as of the first day of any Purchase Period by filing a new
Authorization with the Company or its designated agent at the time and in the
manner specified by the Committee. A participant may not change the amount of
his or her payroll deduction effective as of any date other than the first day
of a Purchase Period, except that a participant may elect to terminate his or
her participation in the Plan as provided in Section 7.
Payroll deductions for each participant shall be credited to a purchase
account established on behalf of the participant on the books of the
participant's employer or such employer's designated agent (a "Purchase
Account"). At the end of each Purchase Period, the amount in each participant's
Purchase Account will be applied to the purchase from the Company of the number
of Common Shares determined by dividing such amount by the Purchase Price (as
defined in Section 5) for such Purchase Period. No interest shall accrue at any
time for any amount credited to a Purchase Account of a participant.
(b) Other Methods of Participation. The Committee may, in its discretion,
establish additional procedures whereby Eligible Employees may participate in
the Plan by means other than payroll deduction, including, but not limited to,
delivery of funds by participants in a lump sum or automatic charges to
participants' bank accounts. Such other methods of participating shall be
subject to such rules and conditions as the Committee may establish. The
Committee may at any time amend, suspend or terminate any participation
procedures established pursuant to this paragraph without prior notice to any
participant or Eligible Employee.
5. Purchase Price. The purchase price (the "Purchase Price") per Common
Share hereunder for any Purchase Period shall be the lesser of 85% of the fair
market value of a Common Share on the first day of such Purchase Period and 85%
of the fair market value of a Common Share on the last day of such Purchase
Period. If such sum results in a fraction of one cent, the Purchase Price shall
be increased to the next higher full cent. For purposes of the Plan, the fair
market value of a Common Share on a given day shall be the mean between the high
and low sale prices per share for the Common Shares on such date, as reported in
a summary of composite transactions for stock listed on the New York Stock
Exchange or, if the New York Stock Exchange is not open for trading on such
date, the fair market value of a Common Share shall be the average of the means
between the high and low sale prices per share for the Common Shares, 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. In no event, however,
shall the Purchase Price be less than the par value of the Common Shares.
6. Purchase Accounts and Certificates. The Common Shares purchased by each
participant shall be credited to such participant's Purchase Account as of the
close of business on the last day of each Purchase Period. A participant will be
issued a certificate for his or her shares when his or her participation in the
Plan is terminated, the Plan is terminated or upon request, but in the last case
only in denominations of at least 25 shares.
After the close of each Purchase Period, a report will be sent to each
participant stating the entries made to such participant's Purchase Account, the
number of Common Shares purchased and the applicable Purchase Price. In the
event that the maximum number of Common Shares are purchased by the participant
for the Purchase Period and cash remains credited to the participant's Purchase
Account, such cash shall be delivered promptly to such participant. For purposes
of the preceding sentence, the maximum number of Common Shares that may be
purchased by a participant for a Purchase Period shall be determined under the
last sentence of Section 2, as limited by the third sentence of Section 2.
7. Termination of Participation. A participant may elect at any time to
terminate his or her participation in the Plan, provided such election is
received by the Company or its designated agent in writing prior to the date
specified by the Committee for termination of participation during the Purchase
Period for which such termination is to be effective. Upon any such termination,
the cash credited to such participant's Purchase Account on the date of such
termination, one or more certificates for the number of full Common Shares held
for his or her benefit, and the cash equivalent for any fractional share so held
shall be delivered promptly to such participant. Such cash equivalent shall be
determined by multiplying the fractional share by the fair market value of a
Common Share on the last day of the Purchase Period immediately preceding such
termination determined as provided in Section 5.
If the participant dies, terminates employment with the Participating
Companies for any reason, or otherwise ceases to be an Eligible Employee, such
participant's participation in the Plan shall immediately
B-2
<PAGE> 34
terminate. Upon such terminating event, the cash credited to such participant's
Purchase Account on the date of such termination, one or more certificates for
the number of full Common Shares held for such participant's benefit, and the
cash equivalent of any fractional share so held, determined as provided above in
this Section 7, shall be delivered promptly to such participant or his or her
legal representative, as the case may be.
8. Termination or Amendment of the Plan. The Plan shall automatically
terminate on June 30, 2002, unless terminated earlier by the Company or as
otherwise provided herein. The Company, by action of the Board or the Committee,
may terminate the Plan at any time prior to June 30, 2002, in which case notice
of such termination shall be given to all participants, but any failure to give
such notice shall not impair the effectiveness of the termination.
Without any action being required, the Plan shall terminate in any event
when the maximum number of Common Shares to be sold under the Plan (as provided
in Section 12) has been purchased. Such termination shall not impair any rights
which under the Plan shall have vested on or prior to the date of such
termination. If at any time the number of Common Shares remaining available for
purchase under the Plan are not sufficient to satisfy all then-outstanding
purchase rights, the Board or Committee may determine an equitable basis of
apportioning available Common Shares among all participants.
The Board or the Committee may amend the Plan from time to time in any
respect for any reason; provided, however, no such amendment shall (a)
materially adversely affect any purchase rights outstanding under the Plan
during the Purchase Period in which such amendment is to be effected, (b)
increase the maximum number of Common Shares which may be purchased under the
Plan, (c) decrease the Purchase Price of the Common Shares for any Purchase
Period below the lesser of 85% of the fair market value thereof on the first day
of such Purchase Period and 85% of such fair market value on the last day of
such Purchase Period or (d) adversely affect the qualification of the Plan under
Section 423 of the Code.
Upon termination of the Plan, one or more certificates for the number of
full Common Shares held for each participant's benefit, the cash equivalent of
any fractional share so held determined as provided in Section 7, and, except as
otherwise provided in Section 14, the cash, if any, credited to the such
participant's Purchase Account, shall be distributed promptly to such
participant.
9. Non-Transferability. Rights acquired under the Plan are not transferable
and may be exercised only by a participant.
10. Shareholder's Rights. No Eligible Employee or participant shall by
reason of the Plan have any rights of a shareholder of the Company until he or
she shall acquire Common Shares as herein provided.
11. Administration of the Plan. The Plan shall be administered by the
Administrative Committee for Sears Benefit Plans (the "Committee"). In addition
to the power to amend or terminate the Plan pursuant to Section 8, the Committee
shall have full power and authority to: (i) interpret and administer the Plan
and any instrument or agreement entered into under the Plan; (ii) establish such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (iii) make any other determination
and take any other action that the Committee deems necessary or desirable for
administration of the Plan. Decisions of the Committee shall be final,
conclusive and binding upon all persons, including the Company, any participant
and any other employee of the Company. A majority of the members of the
Committee may determine its actions and fix the time and place of its meetings.
The Plan shall be administered so as to ensure that all participants have
the same rights and privileges as are provided by section 423(b)(5) of the Code.
12. Maximum Number of Shares. The maximum number of Common Shares which may
be purchased under the Plan is 10,000,000, subject to adjustment as hereinafter
set forth. Common Shares sold hereunder shall be purchased for participants in
the open market (on an exchange or in negotiated transactions) or, if the
Company's Chief Financial Officer, in his or her discretion, deems it to be
necessary or advisable, Common Shares sold hereunder may be previously acquired
treasury shares, authorized and unissued shares, or any combination of shares
purchased in the open market, previously acquired treasury shares or authorized
and unissued shares. If the Company shall, at any time after the effective date
of the Plan, change its issued Common Shares into an increased number of shares,
with or without par value, through a stock dividend or a stock split, or into a
decreased number of shares, with or without par value, through a combination of
shares, then, effective with the record date for such change, the maximum number
of Common Shares which thereafter may be purchased under the Plan and the
maximum number of shares which thereafter may be purchased during any Purchase
Period shall be the maximum number of shares which, immediately prior to such
record date, remained available for purchase under the Plan and under any
Purchase Period proportionately increased, in case of such stock dividend or
stock split, or proportionately decreased in case of such combination of shares.
B-3
<PAGE> 35
13. Miscellaneous. Except as otherwise expressly provided herein, any
Authorization, election or notice under the Plan from an Eligible Employee or
participant shall be delivered to the Company or its designated agent and,
subject to any limitations specified in the Plan, shall be effective when so
delivered. The Plan, and the Company's obligation to sell and deliver Common
Shares hereunder, shall be subject to all applicable federal and state laws,
rules and regulations, and to such approval by any regulatory or governmental
agency as may, in the opinion of counsel for the Company, be required.
14. Change in Control. In order to maintain the participants' rights in the
event of any Change in Control of the Company, as hereinafter defined, upon such
Change in Control the then current Purchase Period shall thereupon end, and the
cash credited to all participants' Purchase Accounts shall be applied to
purchase shares pursuant to Sections 5 and 6, and the Plan shall immediately
thereafter terminate. For purposes of this Section 14, "Change in Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding common shares of the Company
(the "Outstanding Company Common Shares") or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a conversion
privilege); (ii) any acquisition by the Company or any of its subsidiaries
(as defined below); (iii) any acquisition by any employee benefit plan (or
any related trust) sponsored or maintained by the Company or any of its
subsidiaries; or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and
(iii) of (c) below are satisfied; or
(b) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or
(c) Approval by the shareholders of the Company of a "Business
Combination", which shall mean a reorganization, merger or consolidation,
in each case, unless, following such reorganization, merger or
consolidation, (i) more than 60% of, respectively, the then outstanding
common shares of the corporation resulting from such reorganization, merger
or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Shares
and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Company Common Shares and
Outstanding Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any of its subsidiaries, any employee benefit plan
(or related trust) sponsored or maintained by the Company, any of its
subsidiaries or such corporation resulting from such reorganization, merger
or consolidation and any Person beneficially owning, immediately prior to
such reorganization, merger or consolidation, directly or indirectly, 20%
or more of the Outstanding Company Common Shares or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding common
shares of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election
of directors and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale or other
disposition, (A) more than 60% of,
B-4
<PAGE> 36
respectively, the then outstanding common shares of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Shares and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities, as the case may be, (B) no Person (excluding the Company, any
of its subsidiaries, and any employee benefit plan (or related trust) sponsored
or maintained by the Company, any of its subsidiaries or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding Company
Common Shares or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding common shares of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (C) at least a majority of the
members of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such sale or other disposition of assets of the
Company.
For purposes of the foregoing definition of "Change of Control," a
"subsidiary" of the Company shall mean any corporation in which the Company,
directly or indirectly, holds a majority of the voting power of such
corporation's outstanding shares of capital stock.
B-5
<PAGE> 37
PROXY
SEARS, ROEBUCK AND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SEARS, ROEBUCK AND CO.
The undersigned hereby appoints WARREN L. BATTS, ARTHUR C. MARTINEZ, MICHAEL A.
MILES, NANCY C. REYNOLDS, CLARENCE B. ROGERS, JR., and DONALD H. RUMSFELD, 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 8, 1997, 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 C: Hall Adams, Jr., Alston D.
Correll, Jr., Richard C. Notebaert and Patrick G. Ryan
Nominee in Class A: Hugh B. Price
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.
----------------
SEE REVERSE SIDE
----------------
<PAGE> 38
<TABLE>
<S><C>
Please mark your
X votes as in this example. 0111
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 and 3 and AGAINST proposal 4, including as to whole shares held for the undersigned's account in the Sears
Direct Purchase Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2 AND 3. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST PROPOSAL 4.
- ----------------------------------------------------------------- -------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Election of 2. Appointment of Deloitte
Directors & Touche LLP as
(see reverse) independent auditors
for the year 1997. 4. Shareholder proposal relating
to declassifying the
3. Adoption of Sears Board.
For, except vote withheld Employee Stock
from the following nominee(s): Purchase Plan.
- --------------------------------
CHECK THIS BOX
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.
</TABLE>
