<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
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.
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(Name of Registrant as Specified in Its Charter)
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 26, 1998
ARTHUR C. MARTINEZ
Chairman of the Board
Dear Shareholder:
I am pleased to invite you to attend the Company's 1998 annual meeting of
shareholders on Thursday, May 14, 1998. 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 1997 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. If you plan to attend the
meeting and are a shareholder of record, please mark your proxy card in the
space provided for that purpose. An admission ticket is included in the envelope
containing the proxy statement and the annual report.
The Board of Directors recommends that shareholders vote FOR proposals 1
and 2 and AGAINST proposal 3.
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 26, 1998
MICHAEL D. LEVIN
Senior Vice
President
General Counsel
and Secretary
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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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 14, 1998, at 10:00 a.m., for the following purposes:
1. to elect four directors in Class A for terms expiring at the 2001 annual
meeting of shareholders and one director in Class B for a term expiring
at the 1999 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 1998;
3. to vote on a shareholder proposal concerning declassifying the Board of
Directors; and
4. to transact such other business as may properly come before the meeting.
By Order of the Board of Directors,
/s/ MICHAEL 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 26, 1998
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The Board of Directors of Sears, Roebuck and Co. is soliciting proxies from
its shareholders for the annual meeting of shareholders to be held on May 14,
1998.
You are entitled to vote at the meeting if you were a shareholder of record
at the close of business on March 25, 1998. On March 26, 1998, the Company began
mailing to all such shareholders a proxy card, this proxy statement and the
Company's 1997 Annual Report. (If you participate in the Sears 401(k) Profit
Sharing Plan (formerly, The Savings and Profit Sharing Fund of Sears Employees)
(the "Profit Sharing Plan"), the trustee of the Profit Sharing Plan 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 Profit Sharing Plan
and generally works just like the proxy card.) On March 25, 1998, there were
390,936,312 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 Hall Adams, Jr., Michael A. Miles,
Richard C. Notebaert 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 1998; and
(iii) 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 to the board of directors.
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" or "against" or "abstain" from voting on the appointment
of auditors and the shareholder proposal referred to above.
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 delivering written notice prior to the meeting to:
Sears, Roebuck and Co.
c/o First Chicago Trust Company of New York
P.O. Box 8648
Edison, New Jersey 08818-9147
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.
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 other proposals to be adopted (i.e., the appointment of
1
<PAGE> 5
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Deloitte & Touche LLP as auditors and the shareholder proposal relating to
declassifying the Board), more shares must be voted "for" the relevant proposal
than "against" it.
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.
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. 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 A, whose terms expire at the 1998 annual meeting of
shareholders, are Warren L. Batts, Arthur C. Martinez, Hugh B. Price and
Clarence B. Rogers, Jr. They have each been nominated to serve in Class A for
another term expiring in 2001. Nancy C. Reynolds, formerly a Class A director,
retired on June 26, 1997. Donald H. Rumsfeld, a Class B director, will retire at
the close of the 1998 annual meeting; at January 31, 1998, he owned 8,663 common
shares and 448 common share equivalents.
Brenda C. Barnes (who was elected by the Board to serve as a director of
the Company on December 10, 1997) has been nominated to serve in Class B.
The directors in Class B are serving terms that expire in 1999, and the
directors in Class C are serving terms that expire in 2000.
2
<PAGE> 6
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Information as to each nominee and as to directors continuing in Classes B
and C follows.
NOMINEES FOR DIRECTOR
CLASS A: TERM EXPIRING AT 2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
WARREN L. BATTS Chairman and Chief Executive Officer of Tupperware
Corporation (consumer products) from June 1996 until his
[photo Warren L. Batts] retirement on September 30, 1997, and Chairman of Premark
International, Inc. (consumer and commercial products) from
May 1996 until his retirement on September 30, 1997. Mr.
Batts was Chairman and Chief Executive Officer of Premark
International, Inc. 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 Chairman of the Board of Directors of Children's
Memorial Hospital of Chicago and is a Trustee of The Art
Institute of Chicago and Northwestern University.
Chairman: Audit Committee.
Member: Executive Committee and Nominating Committee.
Director since 1986. Age 65.
Common shares beneficially owned: 5,661.
Common share equivalents: 25,557.*
ARTHUR C. MARTINEZ Chairman of the Board, President and Chief Executive Officer
of the Company since August 1995 and Chairman and Chief
[photo Arthur C. 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 director of Ameritech Corporation, Amoco Corporation,
National Urban League 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 Board of Directors of the
National Retail Federation, 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 58.
Common shares beneficially owned: 908,093.
HUGH B. PRICE President and Chief Executive Officer of the National Urban
League (social service and welfare organization) since July
[photo Hugh B. Price] 1994. Mr. Price served as the Vice President of the
Rockefeller Foundation from November 1988 to June 1994. He
is a director of Bell Atlantic Corporation and Metropolitan
Life Insurance Company. Mr. Price is also a Trustee of the
Committee for Economic Development, Educational Testing
Service and the Urban Institute.
Member: Nominating Committee.
Director since 1997. Age 56.
Common shares beneficially owned: 565.
Common share equivalents: 432.*
</TABLE>
3
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<TABLE>
<S> <C>
CLARENCE B. ROGERS, JR. Chairman of the Board of Equifax Inc. (information-based
administrative services) since January 1996, and Chairman
[photo Rogers Jr] and Chief Executive Officer of Equifax Inc. from October
1992 until December 1995. Mr. Rogers was President and Chief
Executive Officer of Equifax Inc. from October 1989 until
October 1992. He is Chairman of the Board of Directors of
ChoicePoint, Inc. He is also a director of Briggs & Stratton
Corporation, Morgan Stanley, Dean Witter, Discover & Co.,
Oxford Industries, Inc. and Teleport Communications Group,
Inc.
Chairman: Compensation Committee.
Member: Executive Committee and Nominating Committee.
Director since 1980. Age 68.
Common shares beneficially owned: 8,757.
Common share equivalents: 30,222.*
</TABLE>
CLASS B: TERM EXPIRING AT 1999 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
BRENDA C. BARNES President and Chief Executive Officer of PepsiCola North
America (beverages) from April 1996 until her retirement in
[photo Barnes] January 1998. Ms. Barnes served as Chief Operating Officer
of PepsiCola North America from January 1993 to March 1996
and held other positions with Pepsico, Inc. since 1976. She
is a director of Avon Products, Inc. and Vice Chair of the
Board of Trustees of Augustana College.
Member: Audit Committee.
Director since 1997. Age 44.
Common shares beneficially owned: 1,109.
</TABLE>
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
CLASS B: TERM 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 consumer products) from
September 1991 until his retirement in July 1994. Mr. Miles
served as Vice Chairman of Philip Morris Companies Inc. and
Chairman and Chief Executive Officer of Kraft General Foods,
Inc. from December 1989 to September 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, Community Health
Systems, Inc., Morgan Stanley, Dean Witter, Discover & Co.,
Dell Computer Corp. and Time Warner Inc. Mr. Miles is also a
Trustee of Northwestern University.
Member: Compensation Committee, Executive Committee and
Nominating Committee.
Director since 1992. Age 58.
Common shares beneficially owned: 7,317.
Common share equivalents: 6,822.*
</TABLE>
4
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<TABLE>
<S> <C>
DOROTHY A. TERRELL President, Services Group, and Senior Vice President,
Corporate Operations, of Natural MicroSystems Corporation (a
[photo Terrell] telecommunications company) since February 1998. Ms. Terrell
served as President of SunExpress, Inc., an operating
company of Sun Microsystems, Inc., and as a Corporate
Executive Officer of Sun Microsystems, Inc. from August 1991
until September 1997. Ms. Terrell served as a Group Manager
in Digital Equipment Corporation from October 1987 to July
1991. She is a director of General Mills, Inc., Herman
Miller, Inc. and Massachusetts Technology Development
Corporation. She is also a director of the National Housing
Partnership Foundation and is a member of the Advisory
Council of the Stanford Graduate School of Business. Her
professional affiliations include The Boston Club, The
Committee of 200 and The Commonwealth Institute.
Member: Audit Committee and Compensation Committee.
Director since 1995. Age 52.
Common shares beneficially owned: 4,711.
</TABLE>
CLASS C: TERMS EXPIRING AT THE 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 and Nominating Committee
Director since 1993. Age 64.
Common shares beneficially owned: 5,061
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 The Southern Company.
Member: Audit Committee and Compensation Committee.
Director since 1996. Age 56.
Common shares beneficially owned: 3,496.
Common share equivalents: 929.*
</TABLE>
5
<PAGE> 9
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<TABLE>
<S> <C>
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 director of Aon Corporation, a Charter
Trustee of Northwestern University and a Trustee of the
University of Notre Dame and the Chicago Symphony Orchestra.
He is also a member of Northwestern University's J.L.
Kellogg Graduate School of Management Advisory Board and a
member of the University of Illinois President's Advisory
Council. Mr. Notebaert is currently a member of The Business
Council, The Business Roundtable, The Council on
Competitiveness, The Chicago Council on Foreign Relations,
the Civic Committee of The Commercial Club of Chicago and
The Economic Club of Chicago.
Member: Audit Committee and Nominating Committee.
Director since 1996. Age 50.
Common shares beneficially owned: 2,979.
Common share equivalents: 587.*
PATRICK G. RYAN Chairman of the Board 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 Tribune Company, Chairman of the Board
of Trustees of Northwestern University and a Trustee of
Rush-Presbyterian-St. Luke's Medical Center and Field Museum
of Natural History.
Member: Compensation Committee.
Director since 1997. Age 60.
Common shares beneficially owned: 1,547.
</TABLE>
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* 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, 1998.
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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. ...................................... 5,061(b)
Warren L. Batts....................................... 5,661(b)
Brenda C. Barnes...................................... 1,109(c)
Alston D. Correll, Jr. ............................... 3,496(d)
Arthur C. Martinez.................................... 908,093(e)
Michael A. Miles...................................... 7,317(b)
Richard C. Notebaert.................................. 2,979(f)
Hugh B. Price......................................... 565(g)
Clarence B. Rogers, Jr. .............................. 8,757(b)
Donald H. Rumsfeld.................................... 8,663(b)
Patrick G. Ryan....................................... 1,547(g)
Dorothy A. Terrell.................................... 4,711(b)
Gary L. Crittenden.................................... 60,167(h)
Robert L. Mettler..................................... 357,187(i)
William L. Salter..................................... 64,420(j)
Allan B. Stewart...................................... 190,019(k)
All directors and executive officers as a group....... 2,582,859(l)
</TABLE>
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(a) Direct ownership unless indicated otherwise.
(b) Includes 1,423 vested deferred shares and 2,538 shares subject to option.
(c) Includes 109 vested deferred shares.
(d) Includes 992 vested deferred shares and 1,504 shares subject to option.
(e) Includes 802,077 shares subject to option and 861 shares credited to Mr.
Martinez's account in the Profit Sharing Plan.
(f) Includes 1,145 vested deferred shares, 1,734 shares subject to option and
100 shares owned by Mr. Notebaert's wife. Mr. Notebaert disclaims beneficial
ownership of the shares held by his wife.
(g) Includes 547 vested deferred shares.
(h) Includes 28,454 shares subject to option and 124 shares credited to Mr.
Crittenden's account in the Profit Sharing Plan.
(i) Includes 310,735 shares subject to option and 611 shares credited to Mr.
Mettler's account in the Profit Sharing Plan.
(j) Includes 37,204 shares subject to option and 782 shares credited to Mr.
Salter's account in the Profit Sharing Plan.
(k) Includes 170,993 shares subject to option, 3,408 shares credited to Mr.
Stewart's account in the Profit Sharing Plan and 300 shares owned by his
son. Mr. Stewart disclaims beneficial ownership of the shares held by his
son.
(l) Includes 2,205,551 shares subject to option and 12,826 shares credited to
executive officers' accounts in the Profit Sharing Plan.
Share ownership of nominees, directors and executive officers is as of
January 31, 1998 and includes (i) shares in which they may be deemed to have a
beneficial interest, (ii) shares held as nontransferable restricted shares
awarded under the Company's 1994 Employees Stock Plan as of January 31, 1998,
which are subject to forfeiture under certain circumstances, (iii) shares
credited to individual accounts in the Profit Sharing Plan, a qualified savings
and defined contribution plan, (iv) shares subject to options that are
exercisable on or prior to April 1, 1998, and (v) in the case of directors,
deferred shares that are eligible for vesting on or prior to April 1, 1998. In
the case of Ms. Barnes, share ownership also includes shares she acquired in
February 1998.
To the knowledge of the Company, as of January 31, 1998, no director or
executive officer had a beneficial interest in more than .23% of the outstanding
Sears common shares, and all directors, nominees for director and executive
officers together beneficially owned an aggregate of 2,582,859 Sears common
shares (.66% of the outstanding shares), which included 2,205,551 shares subject
to option.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP: OF
NAME AND ADDRESS SEARS COMMON SHARES(a) CLASS
- ------------------------------------------------------------ ---------------------- -------
<S> <C> <C>
State Street Bank and Trust Company 37,852,336(b) 9.68%
One International Place Trust, Employee
Boston, MA 02110 benefit plan
</TABLE>
- ------------------
(a) 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.
(b) State Street Bank and Trust Company, Trustee under the Sears 401(k) Profit
Sharing Trust, held these shares on behalf of participants in the Profit Sharing
Plan. The number shown excludes approximately 6,434,241 Sears common shares held
for other clients.
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Further Information Concerning the Board of Directors
-----------------------------------------------------
The Board of Directors held seven meetings during 1997. The committees of
the Board of Directors and the number of meetings held by each committee in 1997
were:
<TABLE>
<CAPTION>
NUMBER OF
COMMITTEE MEETINGS HELD
NAME DURING 1997
- --------------------------------------- -------------
<S> <C>
Audit Committee 4
Compensation Committee 6
Executive Committee 0
Nominating Committee 5
</TABLE>
Audit Committee. The Audit Committee reviews the Company's annual financial
statements and other financial information to be included in the Company's Form
10-K and annual report to shareholders. The Audit Committee also reviews the
Company's activities regarding compliance with laws. The Audit Committee reviews
recommendations made by the independent accountants and internal auditors on
accounting methods and internal controls and makes recommendations to the Board
on the scope of audits. The Audit Committee reviews reports from the internal
auditors and the compliance office concerning compliance by management with
legal provisions and with the Company's business practices, procedures and
ethics policies and 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. These recommendations may
cover the terms and conditions of employment of the Company's officers. The
Compensation Committee also 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.
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
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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 shareholder proposals for the 1998 annual
meeting of shareholders was March 9, 1998. The deadline for the 1999
annual meeting will be March 15, 1999. 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.)
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.
Directors' Compensation and Benefits
-----------------------------------------------------
DIRECTOR COMPENSATION PROVISIONS
The Company has designed the directors' compensation and benefits to align
directors' interests with shareholders' interests. 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. Deferred shares vest one year after they are granted, except
for deferred shares acquired as a result of reinvested dividends, which vest
immediately. Each director will receive his or her vested deferred shares upon
termination of service, either in a single distribution or in installments over
a period not to exceed ten years. 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 become
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 8, 1997, each
director then in office received a grant of 600 deferred shares and an option to
purchase 1,800 shares at an exercise price of $50.00, for the year spanning the
1997 and 1998 annual meetings. Ms. Barnes, who joined the Board on December 10,
1997, received a prorated grant of approximately 355 deferred shares and an
option to purchase 811 shares at an exercise price of $46.19.
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, vested deferred
shares and common share equivalents with an aggregate value equal to five times
the annual cash retainer of $30,000, measured by the higher of cost or market.
In addition to equity compensation, directors receive a $30,000 annual cash
retainer for serving on the Board, and the Chairs of the Audit, Compensation and
Nominating Committees receive an additional retainer of $5,000. 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.
9
<PAGE> 13
- --------------------------------------------------------------------------------
Prior to March 12, 1998, the Company provided $150,000 of life insurance to
each non-employee director. Effective March 12, 1998, the Board eliminated life
insurance for non-employee directors who retire after that date. The $150,000 of
life insurance provided to each non-employee director who retired before March
12, 1998 is reduced by $30,000 at the beginning of each year following his or
her retirement until the coverage is reduced to zero.
Non-employee directors who were first elected to the Board prior to
November 8, 1995 will receive $30,000 annually after their retirement from the
Board pursuant to the Non-Employee Director Retirement Plan, which was
terminated in 1995.
10
<PAGE> 14
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
-----------------------------------------------------
The following Summary Compensation Table shows compensation information for
the CEO, Mr. Martinez, and the four other executive officers who were most
highly compensated in 1997 (the "Named Officers"). Executive officers are
designated by the Board of Directors.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- ------------------------- ---------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS/ PAYOUTS COMP.
NAME AND PRINCIPAL POSITION YEAR ($) ($)(a) ($)(b) ($)(c) SARS(#) ($)(d) ($)(e)
- ----------------------------- ---- --------- --------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez 1997 1,125,000 -- 390,022 -- 500,000 771,093 6,650
Chairman, President & CEO 1996 1,100,000 1,890,900 422,651 -- 33,870 -- 6,300
1995 1,023,915 1,005,980 166,825 -- 222,134 3,033,583 6,468
Gary L. Crittenden 1997 404,438 222,069(f) 9,447 1,122,600(g) 100,000 194,324 6,650
Executive Vice President & 1996 400,000 469,046(h) 2,776 303,815 42,682 -- --
Chief Financial Officer 1995 -- -- -- -- -- -- --
Robert L. Mettler 1997 700,000 244,104 1,829 1,683,900(g) 100,000 360,159(i) 6,650
President, Merchandising- 1996 675,000 874,125 1,848 -- 17,838 -- 6,300
Full-Line Stores 1995 660,000 277,794 1,202 -- 98,154 1,875,281 6,468
William L. Salter 1997 370,000 266,193 1,681 -- 98,094 187,986(j) 6,650
President, 1996 350,000 453,250(k) 830 -- 9,632 -- 6,300
Home Stores 1995 317,800 141,958 -- -- 45,325 681,142 6,468
Allan B. Stewart 1997 472,500 164,770 2,162 -- 69,752 246,401 6,650
President, Stores- 1996 465,000 602,175 2,162 -- 7,056 -- 6,300
Full-Line Stores 1995 455,000 291,155 3,180 -- 93,273 1,293,697 6,468
</TABLE>
-------------------
(a) Mr. Martinez's annual bonus is based entirely on Company net income.
Bonuses for the other Named Officers are based 50% on Company net
income and 50% on the net income of the business units they manage
(for a portion of 1997, Mr. Crittenden was President of Sears'
Hardware Stores). The 1997 payout based on Company net income was 0%.
Bonus amounts shown for 1997 are based solely on business unit net
income.
(b) Represents certain tax gross-up payments and/or a portion of interest
on deferred compensation.
(c) Restricted stock awards are valued at the closing price of Sears
shares on the date of grant. Dividends are paid on restricted shares
at the same rate paid to all shareholders. The Named Officers held the
following shares of restricted stock valued at January 2, 1998 at a
fair market value for Sears common shares of $46.22 per share:
<TABLE>
<CAPTION>
MR. MARTINEZ MR. CRITTENDEN MR. METTLER MR. SALTER MR. STEWART
------------ -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Number of Shares -- 29,298 30,000 2,542 --
Market Value as of 1/2/98 -- $1,354,154 $1,386,600 $117,491 --
</TABLE>
(d) Long-term incentive awards paid in March 1998 were earned under the
1996-97 cycle of the long-term incentive plan which ended on December
31, 1997. Long-term incentive awards paid in March 1996 were earned
under the 1993-95 cycle of the long-term incentive plan which ended on
December 31, 1995. Each Named Officer earned a portion of the total
payouts for the 1993-95 cycle and the 1996-97 cycle as follows:
<TABLE>
<CAPTION>
MR. MARTINEZ MR. CRITTENDEN MR. METTLER MR. SALTER MR. STEWART
------------ -------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1993 809,101 -- 631,875 177,352 436,056
1994 1,116,795 -- 631,875 252,626 436,056
1995 1,107,687 -- 611,531 251,164 421,585
--------- ------- --------- ------- ---------
1993-95 Cycle 3,033,583 -- 1,875,281 681,142 1,293,697
1996 510,197 123,269 237,178 122,981 163,388
1997 260,896 71,055 122,981 65,005 83,013
--------- ------- --------- ------- ---------
1996-97 Cycle 771,093 194,324 360,159 187,986 246,401
</TABLE>
The portion of each Named Officer's 1996-97 payout earned in 1997 was
calculated based on 50% of his 1997 salary. Each Named Officer will be
eligible for a payout under the 1997-99 cycle based in part on the
remaining 50% of his 1997 salary. The payouts include the full impact
of the credit reaffirmation charge.
(e) These amounts represent the Company's matching contribution under the
Profit Sharing Plan and under the Company's nonqualified Management
Supplemental Deferred Profit Sharing Plan.
(f) Pursuant to an equity swap feature available to participants in the
annual incentive plan, Mr. Crittenden elected to swap 25% of this
amount ($55,517) for restricted stock having a fair market value on
February 27, 1998 (the date of grant) of $52.82 per share and vesting
on February 27, 2001. In exchange for electing to receive restricted
stock in lieu of cash, a 20% premium ($11,103) was added to the
portion of Mr. Crittenden's bonus that he elected to swap for
restricted stock.
(g) These awards are subject to both performance-based vesting
requirements and lapse of time vesting requirements. For a description
of the vesting requirements, see "Performance-Based Restricted Shares"
on page 16.
(h) Pursuant to the equity swap feature, Mr. Crittenden elected to swap
25% of this amount ($117,262) for restricted stock having a fair
market value on February 28, 1997 (the date of grant) of $53.50 per
share and vesting on February 28, 2000. In exchange for electing to
receive restricted stock in lieu of cash, a 20% premium ($23,452) was
added to the portion of Mr. Crittenden's bonus that he elected to swap
for restricted stock.
(i) Pursuant to an equity swap feature available to participants in the
long-term incentive plan, Mr. Mettler elected to swap 100% of this
amount for shares of restricted stock having a fair market value on
March 13, 1998 (the date of grant) of $57.10 per share and vesting on
March 13, 2001. In exchange for electing to receive restricted stock
in lieu of cash, a 20% premium ($72,032) was added to the portion of
Mr. Mettler's long-term incentive payout that he elected to swap for
restricted stock.
(j) Pursuant to the equity swap feature, Mr. Salter elected to swap 25% of
this amount ($46,996) for restricted stock having a fair market value
on March 13, 1998 (the date of grant) of $57.10 per share and vesting
on March 13, 2001. In exchange for electing to receive restricted
stock in lieu of cash, a 20% premium ($9,399) was added to the portion
of Mr. Salter's long-term incentive payout that he elected to swap for
restricted stock.
(k) Pursuant to the equity swap feature, Mr. Salter elected to swap 25% of
this amount ($113,313) for restricted stock having a fair market value
on February 28, 1997 (the date of grant) of $53.50 per share and
vesting on February 28, 2000. In exchange for electing to receive
restricted stock in lieu of cash, a 20% premium ($22,663) was added to
the portion of Mr. Salter's bonus that he elected to swap for
restricted stock.
- --------------------------------------------------------------------------------
11
<PAGE> 15
- --------------------------------------------------------------------------------
STOCK OPTIONS
-----------------------------------------------------
The following table is a summary of all stock options granted during 1997.
Individual grants are listed separately for each Named Officer. In addition,
this table shows the estimated present value of each grant as of the date the
option was granted.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(a)
---------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS/SARS EMPLOYEES OR BASE EXPIRATION PRESENT
NAME GRANTED IN 1997 PRICE($) DATE VALUE($)(b)
- ------------------------------------------------------- ------------ ------------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez 500,000(c) 12.01% 56.13 03/12/07 6,651,000
Gary L. Crittenden 100,000(c) 2.40% 56.13 03/12/07 1,330,200
Robert L. Mettler 100,000(c) 2.40% 56.13 03/12/07 1,330,200
William L. Salter 15,468 0.37% 56.13 03/12/07 299,460
70,000(c) 1.68% 56.13 03/12/07 931,140
2,129(d) 0.05% 53.94 04/29/05 39,770
3,441(d) 0.08% 57.13 01/31/07 66,893
7,056(d) 0.17% 57.13 04/29/05 137,169
Allan B. Stewart 19,752 0.47% 56.13 03/12/07 382,400
50,000(c) 1.20% 56.13 03/12/07 665,100
</TABLE>
-------------------
(a) Except as noted in footnote (c) below, 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, except as noted in footnote (c) below, 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 tandem stock appreciation 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. Except as described below, the
assumptions used to calculate these values were as follows: dividend
yield -- 1.64%; expected volatility -- 28%; risk-free interest rate --
6.49%; and an option exercise date 6 years from the date of grant (the
expected life of the option). With respect to the grants described in
footnote (c), the Black-Scholes values were based on the above
assumptions except the assumed exercise date was 8 years from the date
of grant and the value was adjusted to reflect the estimated
probability that the performance-based vesting requirements will be
met. With respect to the grants described in footnote (d), the
Black-Scholes values were calculated based on the above assumption
except the assumed dividend yield was 1.61% (1.71% in the case of the
2,129 share grant) and the assumed interest rate was 6.22% (6.69% in
the case of the 2,129 share grant). 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) These options are subject to both performance-based vesting
requirements and lapse of time vesting requirements. For a description
of the vesting requirements, see "Performance-Based Stock Options" on
page 15.
(d) 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 1997 and the
number of shares and the value of grants outstanding as of January 3, 1998 for
each Named Officer.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND FISCAL YEAR END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARs AT OPTIONS/SARs AT
01/03/98 01/03/98(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 -- -- 773,464 596,626 20,099,157 1,210,748
Gary L. Crittenden -- -- 14,227 128,455 5,416 10,834
Robert L. Mettler -- -- 212,728 249,829 4,850,127 3,341,223
William L. Salter 30,275 993,765 25,010 119,625 313,920 253,178
33,416(b) 1,176,776 -- -- -- --
Allan B. Stewart -- -- 154,266 105,547 3,488,593 513,622
</TABLE>
-------------------
(a) Value of unexercised, in-the-money options based on the average fair
market value of a Sears common share of $46.22 as of January 2, 1998,
the last trading day of the Company's fiscal year.
(b) Mr. Salter acquired these shares by tendering shares in lieu of cash
in exercising an option. In accordance with the terms of the option,
by tendering shares instead of cash he received a new option to
replace the shares tendered, as shown in the "Option/SAR Grants in
1997" table above (footnote (d)).
- --------------------------------------------------------------------------------
12
<PAGE> 16
- --------------------------------------------------------------------------------
LONG-TERM PERFORMANCE PLAN
-----------------------------------------------------
The performance criteria in the Company's Long-Term Performance Plan
measure increases in customer satisfaction, associate satisfaction and the
Company's financial performance over a multi-year performance cycle. These
criteria are designed to give participants incentives to make Sears a
"Compelling Place to Shop, Work and Invest." The actual payout that may be
earned under the current performance cycle (1997-99) is based on a weighted
average achievement over the cycle compared to goals established at the
beginning of the cycle for these performance measures.
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1997 (TO BE PAID IN MARCH 2000)
================================================================================
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF SHARES, PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS(a)
UNITS, OR OTHER OTHER PERIOD UNTIL -------------------------------------
NAME RIGHTS(#) MATURATION OR PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
- ------------------ ----------------- ----------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez -- 1/1/98 through 12/31/99 568,068 1,136,136 1,704,204
Gary L. Crittenden -- 1/1/98 through 12/31/99 153,015 306,030 459,045
Robert L. Mettler -- 1/1/98 through 12/31/99 267,776 535,553 803,330
William L. Salter -- 1/1/98 through 12/31/99 141,539 283,078 424,617
Allan B. Stewart -- 1/1/98 through 12/31/99 180,749 361,498 542,247
</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 individual's 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 $74,000 $148,000 $229,200 $ 389,200 $ 556,900
- -------------------------------------
$1,650,000 122,800 245,500 380,300 646,000 924,100
- -------------------------------------
$2,300,000 171,500 343,000 531,400 902,700 1,291,400
- -------------------------------------
$2,950,000 220,300 440,500 682,600 1,159,500 1,658,600
- -------------------------------------
$3,600,000 269,000 538,000 833,700 1,416,200 2,025,900
- -------------------------------------
</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
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 11 are considered in determining pension
benefits.
13
<PAGE> 17
- --------------------------------------------------------------------------------
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, 1998 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 (rounded to the nearest whole number) at December 31,
1997: Martinez (15), Crittenden (1), Mettler (7), Salter (28) and Stewart (33).
Pursuant to their employment agreements with the Company, Messrs. Martinez and
Mettler 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 Mr. Martinez's employment agreement with the Company, the term of
which expired on December 1, 1995, he has been credited with ten years of
service under certain of the Company's retirement plans. In addition, Mr.
Martinez became immediately vested with one year of credited service upon
execution of his employment agreement. These additional years are included in
the number of credited years of service set forth above.
Under Mr. Mettler's employment agreement with the Company, the term of
which expired on February 14, 1996, 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 vested
50% on February 14, 1998 and will vest an additional 10% each year thereafter.
The additional three years that vested on February 14, 1998 are included in the
number of credited years of service set forth above. 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.
OFFICERS' AGREEMENTS
Messrs. Martinez, Crittenden, Mettler, Salter and Stewart have entered into
agreements with the Company that require 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. Under these agreements, if the employment of Messrs. Martinez,
Crittenden, Mettler, Salter or Stewart is involuntarily terminated 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.
14
<PAGE> 18
- --------------------------------------------------------------------------------
CERTAIN STOCK OPTION AND RESTRICTED SHARES PROVISIONS
Following is a description of certain provisions of the stock options,
performance-based stock options, restricted shares and performance-based
restricted shares held by the Named Officers as of January 31, 1998. All of
these stock options, performance-based stock options, restricted shares and
performance-based 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
options have not expired. Upon normal retirement (age 65) or Company-approved
early retirement, each Named Officer retains, for the shorter of five years or
the remaining term of each outstanding option, the right to exercise a pro rata
portion of each option, calculated based on the number of calendar months that
elapsed from the date of grant through the date of retirement over the number of
months needed for full vesting. If a Named Officer dies or becomes totally and
permanently disabled within one year of the date an option is granted, a pro
rata portion of the option, calculated based on the number of calendar months
that elapsed from the date of grant through the date of death or disability over
the number twelve, shall continue to vest in accordance with the terms of the
option grant. Any option granted to a Named Officer more than a year before the
Named Officer dies or becomes totally and permanently disabled will remain
exercisable and will continue to vest for the shorter of five years or the
remaining term of the option.
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.
Performance-Based Stock Options
The Company has granted to each of the Named Officers options that are
subject to both lapse of time and performance-based vesting requirements
("Performance-Based Options"). Subject to satisfaction of the performance-based
vesting requirement, Performance-Based Options become exercisable in three
installments, one-half on the fifth anniversary of the date the option was
granted and one-quarter on each of the sixth and seventh anniversaries. One-half
of each installment will become exercisable only if (i) for any period of twenty
consecutive trading days occurring within three years from the date of grant the
daily average stock price is at least $75, or (ii) for any period of twenty
consecutive trading days occurring within five years from the date of grant the
daily average stock price is at least $100 (the "50% Condition"). The remaining
one-half of each installment will become exercisable only if for any period of
twenty consecutive trading days occurring within five years from the date of
grant the daily average stock price is at least $100 (the "100% Condition").
Upon termination of employment (other than termination following a change
in control), each Named Officer retains the right to exercise any
then-exercisable Performance-Based Options for three additional months, as long
as the options have not expired. Upon termination of employment without cause
following a change in control, all unexercisable Performance-Based Options will
become exercisable and the Named Officer will retain the right to exercise the
Performance-Based Options for three months, as long as the options have not
expired. If, following a change in control, a Named Officer's employment is
terminated by the Named Officer for good reason or by mutual agreement of the
Named Officer and the Company, the Named Officer will retain the right to
exercise the Performance-Based Options for a prorated number of shares (the
"Prorated Option Shares") for three months, as long as the Performance-Based
Options have not expired; provided, however, that one-half of the Prorated
Option Shares will become exercisable only when and if the 50% Condition is
satisfied and the remaining one-half of the Prorated Options Shares will become
exercisable only when and if the 100%
15
<PAGE> 19
- --------------------------------------------------------------------------------
Condition is satisfied. The number of Prorated Option Shares is calculated based
on the number of months that have elapsed since the date of grant over months
needed for full lapse of time vesting (84 months). "Good reason," when used in
connection with a Named Officer's decision to terminate employment, means a
significant reduction in the Named Officer's responsibilities, title or annual
base salary or his mandatory relocation to an office outside the Chicago area.
Upon normal retirement (age 65), Company-approved early retirement, death
or total and permanent disability, the Prorated Option Shares will vest;
provided, however, that one-half of the Prorated Options Shares will become
exercisable only when and if the 50% Condition is satisfied and the remaining
one-half of the Prorated Option Shares will become exercisable only when and if
the 100% Condition is satisfied. Performance-Based Options that vest in
accordance with the preceding sentence remain exercisable for five years, as
long as they have not expired.
If the Company undergoes a change in control, for 60 days following the
change in control, the Named Officer will have stock appreciation rights with
respect to any then-exercisable Performance-Based Options.
If the Company merges with another entity or enters into certain other
extraordinary transactions, the Company may terminate all outstanding
Performance-Based 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 who holds restricted shares (see footnote (c) in the
Summary Compensation Table on page 11) may exchange them for unrestricted shares
upon
(i) the third anniversary of the date of grant,
(ii) normal retirement (age 65),
(iii) early retirement with Company approval after age 60,
(iv) death,
(v) total and permanent disability, or
(vi) 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.
Performance-Based Restricted Shares
The Company has granted to certain Named Officers shares of restricted
stock that are subject to both lapse of time and performance-based vesting
requirements ("Performance-Based Restricted Shares"). Subject to satisfaction of
the performance-based vesting requirement, each Named Officer who holds
Performance-Based Restricted Shares (see footnote (g) in the Summary
Compensation Table on page 11) may exchange them for unrestricted shares upon
the tenth anniversary of the date of grant (the fifth anniversary in the case of
Mr. Mettler). One-half of the Performance-Based Restricted Shares will become
exchangeable for unrestricted common shares only if the 50% Condition is
satisfied. The remaining one-half of the Performance-Based Restricted Shares
will become exchangeable for unrestricted common shares only if the 100%
Condition is satisfied.
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Upon termination of employment without cause following a change in control,
all unvested Performance-Based Restricted Shares will become exchangeable for
unrestricted common shares. If, following a change in control, a Named Officer's
employment is terminated by the Named Officer for good reason or by mutual
agreement between the Named Officer and the Company, the Named Officer will have
the right to exchange a prorated number of Performance-Based Restricted Shares
for unrestricted common shares (the "Prorated Restricted Shares"); provided,
however, that one-half of the Prorated Restricted Shares will become
exchangeable only when and if the 50% Condition is satisfied and the remaining
one-half of the Prorated Restricted Shares will become exchangeable only when
and if the 100% Condition is satisfied. The number of Prorated Restricted Shares
is calculated based on the number of months that have elapsed since the date of
grant over months needed for full lapse of time vesting (120 months or, in the
case of Mr. Mettler, 60 months).
Upon normal retirement (age 65), Company-approved early retirement, death
or total and permanent disability, the Prorated Restricted Shares will become
exchangeable for unrestricted common shares; provided, however, that one-half of
the Prorated Restricted Shares will become exchangeable only when and if the 50%
Condition is satisfied and the remaining one-half of the Prorated Restricted
Shares will become exchangeable only when and if the 100% Condition is
satisfied.
REPORT OF THE COMPENSATION COMMITTEE
-----------------------------------------------------
As Sears continues the transformation begun over the past several 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 continue to have more pay delivered
through variable pay plans. Those plans require achievement of performance
targets which are established to create shareholder value. At-risk pay will
continue to increase as a percentage of total compensation.
- Shareholder Alignment
Pay for executives should place executives' interests more in line
with shareholders' interests. The Company's compensation programs are
designed to deliver a larger percentage of pay to executives in the form of
Sears shares and a smaller percentage in cash, while retaining an emphasis
on performance-based payout formulas. The objective is for executives and
managers to think and act more like owners. When shareholders are rewarded,
executives and managers will share in those rewards.
- Customer Focused
As a retailer, our pay practices at all levels should emphasize the
primacy of Sears 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. Accordingly, a portion of executives' and managers' at-risk pay
is affected by our customer's assessment of how well we are meeting her
needs.
- Management Development
Pay practices must attract and retain the caliber of talent necessary
to meet the current and future leadership needs of our Company. Pay
practices must clearly signal to Sears 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 the Company's executive
compensation philosophy. The Committee recommends the terms
17
<PAGE> 21
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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, recommending 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 and/or the
similarity of their lines of business to that of 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.
PERFORMANCE-BASED EQUITY INCENTIVES
To emphasize the commitment to create greater shareholder value, certain
members of the Company's management Executive Committee, which is composed of
the Company's most senior officers, received stock options, and in some cases
restricted common shares, with a performance feature that allows the options
only to become exercisable and the restricted shares only to vest if Sears stock
reaches a specified stock price within a specified period of time. Subject to
the requirements described below, the stock options will become exercisable and
the restricted shares will vest as follows: (i) 50% of each installment will
become exercisable or vest if, within three years from the date of grant, the
daily average stock price is at least $75 per share for 20 consecutive days and
(ii) 100% of each installment will become exercisable or vest if, within five
years from the date of grant, the stock price is at least $100 per share for 20
consecutive days. If the specified stock price performance test is met, the
restricted common shares will vest in one installment, five years from the date
of grant in the case of Mr. Mettler and ten years from the date of grant in all
other cases, and the stock options will become exercisable in three
installments, 50% five years from the date of grant and 25% each in years six
and seven, provided the grantee remains employed on the vesting date.
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 1997 were again 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 1997, the Board approved and implemented annual incentives designed to
provide rewards at the 70th 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. 1997
was the second 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 have been held back to below-peer-group levels during this transition.
Also, 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 of their annual incentive received in restricted shares,
they will receive a 20% premium above what the cash award would have been.
18
<PAGE> 22
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LONG-TERM PERFORMANCE PLAN
Officers participating in this plan receive cash awards over multiple year
performance cycles. Target award levels are set at the 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." 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 of
their long-term incentive award 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 and are
generally granted annually. Options are granted with an exercise price equal to
the market price on the date of the grant.
STOCK OWNERSHIP GUIDELINES
In keeping with Sears philosophy of developing a mutual commitment between
shareholders and management, the Committee previously 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 and an
amount equal to 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. Unexercised Stock Options do not count toward
fulfillment of the guidelines. Shares are valued at the higher of original cost
or current market price.
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 11, unless certain exceptions apply. One of these
exceptions is that performance-based compensation is not subject to the $1
million limitation. 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 agreed to defer
a portion of his 1997 base salary until after retirement.
CEO COMPENSATION
Mr. Martinez's salary, annual incentive, stock options and long-term
performance plan grants generally follow the policies described above. Amounts
paid and granted under these plans are disclosed in the Summary Compensation
Table on page 11.
Mr. Martinez's base salary was increased 2.3% from $1,100,000 to $1,125,000
on January 1, 1997. This increase was held below market level increases to base
salary as the Company moved toward the 75th percentile for at-risk pay, as
described above. At the same time, in determining this increase, the Committee
recognized Mr. Martinez's contribution in leading the Company to record
financial performance in 1996, as well as improved customer satisfaction. No
specific weight was assigned to any of these factors in determining the amount
of the increase.
Mr. Martinez's 1997 annual incentive opportunity was based on a
pre-approved target level of improvement in Company net income over the prior
year, as described above under "Annual Incentive." Because actual results
achieved were below the threshold level, Mr. Martinez did not receive an annual
incentive award.
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In 1997, Mr. Martinez received a grant of an option to purchase 500,000
shares that included performance measures, as described above under
"Performance-Based Equity Incentives," that must be met for the option to become
exercisable. This grant was in lieu of the normal stock option grant that Mr.
Martinez would have received under the executive compensation program. In
determining the number of shares to grant, the Committee considered Mr.
Martinez's contribution to the improvement in Sears performance during his first
five years with Sears.
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. Patrick G. Ryan
Michael A. Miles Dorothy A. Terrell
</TABLE>
20
<PAGE> 24
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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 1992 THROUGH DECEMBER 1997
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) SEARS S&P 500 S&P RETAIL
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 155.80 110.06 95.02
1994 140.16 111.51 86.80
1995 237.67 153.39 97.28
1996 285.82 188.59 114.62
1997 286.25 251.48 165.81
</TABLE>
* Assumes $100 invested on the last day of December 1992. Dividends are
reinvested at the end of the month in which the ex-dividend date falls. The
above graph and figures account 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
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Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------
During 1997, 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 (who
retired in February 1997), Michael A. Miles, Clarence B. Rogers, Jr., Donald H.
Rumsfeld, Patrick G. Ryan and Dorothy A. Terrell. There were no interlocks with
other companies within the meaning of the SEC's proxy rules during 1997.
Item 2: Approval of Auditors
-----------------------------------------------------
Item 2 is the approval of the Audit Committee's recommendation that
Deloitte & Touche LLP be appointed auditors for 1998. 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 1998 AS PROPOSED IN ITEM 2.
Item 3: Shareholder Proposal
-----------------------------------------------------
CLASSIFIED BOARD
Item 3 is a proposal submitted by Martin Glotzer, 7061 N. Kedzie Avenue,
Suite 301, Chicago, IL 60645, the owner of 10 common shares, and Frank Gopen of
New England Mfg. Corp. Employees' Profit Sharing Plan and Trust, the Plan
Administrator, P.O. Box 278, Brookline, MA 02146-0002, the owner of 100 common
shares.
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 48.591%*, 14,332* owners of 144,172,259* shares, were
cast in favor of this proposal. The vote against included 39,092,642* unmarked
proxies. (*Management is requested to insert the correct figures.)
For many years the Lewis D. and John J. Gilbert, Corporate Democracy Inc.
29 East 64th Street, New York, NY 10021-7043, policy has been to propose and
support similar proposals at various publicly owned Companies.
Sears Director, Mr. Richard C. Notebaert is Chairman of the Board,
President and Chief Executive Officer of Ameritech Corporation. The Board of
Directors of Ameritech voted for and approved a change in its by-laws from
"staggered system" to annual elections of Directors and it is now in effect.
It is our belief that many stockholders in companies, where this proposal
has appeared, have voted for this proposal.
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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.
THE COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that shareholders vote "against" this
proposal.
In 1988, the shareholders of the Company voted to amend the Certificate of
Incorporation to create 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 about one third of the Board is up for
election. The shareholder-approved amendment provides that the classified Board
provisions of the Certificate can only be modified with the vote of 75% of the
outstanding shares.
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. The
Board also believes continuity provides directors with an historical perspective
of the Company that enhances their ability to make fundamental decisions that
are best for the Company--decisions on strategic transactions, significant
capital commitments and careful and consistent use of financial and other
resources. At the same time, the Board remains accountable to the shareholders,
who retain the power to influence the composition of the Board by proposing and
electing alternate nominees for the class of directors to be elected each year.
Passage of the shareholder proposal to declassify the Board would only
constitute an advisory recommendation to the Board. Declassifying the Board can
only be accomplished by amending the Company's Certificate of Incorporation.
Under the New York Business Corporation Law, an amendment to a company's
certificate of incorporation must first be approved by the company's board of
directors and then submitted to its shareholders. As noted above, any amendment
to change the current classified Board structure must also be approved by the
holders of at least 75% of all outstanding Sears common shares. By contrast,
passage of the shareholder proposal requires only a majority of the votes cast
at the meeting. In considering whether to approve an amendment to declassify,
the Board would consider a number of factors, including the likelihood that the
amendment would be approved by the required percentage of shareholders. Last
year, less than half the 75% of the outstanding shares that would be required to
amend the Company's Certificate voted in favor of a shareholder proposal to
declassify.
For these reasons the Board believes that a classified board is still in
the best interests of the Company and its shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE
AGAINST THIS PROPOSAL AS SET FORTH IN ITEM 3.
Shareholder Proposals for 1999 Annual Meeting
-----------------------------------------------------
Proposals which shareholders intend to present at the 1999 annual meeting
of shareholders must be received by the Company no earlier than February 12,
1999 and no later than March 15, 1999 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 27,
1998.
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Certain Transactions
-----------------------------------------------------
State Street Bank and Trust Company ("State Street") provides credit lines
to the Company. State Street also provides investment management services to the
Sears Pension Plan. In 1997, the Company and the Sears Pension Plan together
paid State Street approximately $150,000 for banking and investment management
services. Fees for such services are expected to be approximately $150,000 in
1998.
State Street began to serve as trustee under the Sears 401(k) Profit
Sharing Trust (the "Profit Sharing Trust") and to provide investment management
services on behalf of the Profit Sharing Plan on January 1, 1998. In addition,
administration of the Profit Sharing Plan is being outsourced to State Street in
1998. State Street is expected to receive investment management, trustee and
administration fees of approximately $10.3 million from the Profit Sharing Trust
in 1998.
Wellspring Resources, LLC ("Wellspring"), which is fifty percent owned by
State Street, performs certain administrative services for the Profit Sharing
Plan. In addition, administration of the Sears Pension Plan is being outsourced
to Wellspring this year. In 1997, the Profit Sharing Plan and the Sears Pension
Plan together paid Wellspring approximately $3.7 million for administrative
services and for conversion and implementation services in connection with the
outsourcing. The Profit Sharing Plan and the Sears Pension Plan are expected to
pay Wellspring approximately $6.5 million for administration, conversion and
implementation services in 1998.
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 1997 during which any such person did not serve in such capacity.
Other Matters
-----------------------------------------------------
In accordance with the indemnification provisions of the Company's By-Laws
and applicable law, in 1997 and to date in 1998 the Company has advanced
approximately $525,000 in legal fees and expenses to present and former officers
and associates of the Company in connection with the various lawsuits and
investigations concerning the Company's past handling of individual debtor
bankruptcy reaffirmation agreements. Each person to whom funds have been
advanced has agreed to reimburse the Company in the event that it is ultimately
determined that he or she was not entitled to indemnification under the
Company's By-Laws or the New York Business Corporation Law, or in the event that
the Company determines in good faith that the person violated Company policy or
failed to act in good faith and in a manner reasonably believed to be in and not
opposed to the best interests of the Company or that the person had reasonable
cause to believe that the conduct involved was unlawful.
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.
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<PAGE> 28
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> 29
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 (i) of
shareholders to request inclusion of proposals in the Company's proxy statement
pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any
series of Preferred Stock to elect directors under specified circumstances.
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> 30
(LOGO)PRINTED ON RECYCLED PAPER
<PAGE> 31
SEARS, ROEBUCK AND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SEARS, ROEBUCK AND CO.
P
R The undersigned, revoking any proxy previously given, hereby appoints Hall
O Adams, Jr., Michael A. Miles, Richard C. Notebaert and Donald H. Rumsfeld,
X and each of them, proxies, each with full power of substitution, to vote,
Y as designated on the other side, the shares of the undersigned at the
Annual Meeting of Shareholders of Sears, Roebuck and Co. on May 14, 1998,
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 A: Warren L. Batts, Arthur C.
Martinez, Hugh B. Price and Clarence B. Rogers, Jr.
Nominee in Class B: Brenda C. Barnes
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> 32
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN AND IN THE DISCRETION OF THE PROXY HOLDERS ON ALL OTHER MATTERS COMING
BEFORE THE MEETING. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
OF THE BOARD OF DIRECTORS' NOMINEES, FOR PROPOSAL 2 AND AGAINST PROPOSAL 3,
INCLUDING AS TO WHOLE SHARES HELD FOR THE UNDERSIGNED'S ACCOUNT IN THE SEARS
DIRECT PURCHASE STOCK PLAN.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ --------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THE BOARD OF DIRECTORS RECOMMENDS A VOTE
A VOTE FOR PROPOSALS 1 AND 2. AGAINST PROPOSAL 3.
- ------------------------------------------------------------------------ --------------------------------------------------------
FOR WITHHELD FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Election of [ ] [ ] 2. Appointment of [ ] [ ] [ ] 3. Shareholder proposal relating [ ] [ ] [ ]
Directors Deloitte & to declassifying the Board.
(see reverse) Touche LLP as
independent --------------------------------------------------------
auditors for -----------------------------------------
the year 1998. SPECIAL ACTION
For, except vote withheld from the following nominee(s): -----------------------------------------
Check this box if you [ ]
wish to discontinue
- --------------------------------------- receiving the Annual
- ------------------------------------------------------------------------ Report because
another household
member receives one.
Check this box if you will [ ]
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>
