<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Sears, Roebuck and Co.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -----------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- -----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -----------------------------------------------------------------------------
(5) Total fee paid:
- -----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- -----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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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, 1999
ARTHUR C. MARTINEZ
Chairman of the Board
Dear Shareholder:
I am pleased to invite you to attend the Company's 1999 Annual Meeting of
Shareholders on Thursday, May 13, 1999. The meeting will begin at 10:00 a.m. in
the Penthouse Theatre at Atlanta's Apparel Mart.
The Notice of Annual Meeting and Proxy Statement that follow this letter
describe the matters to be voted on during the meeting. Your proxy card and the
Company's 1998 Annual Report are also enclosed.
Whether or not you plan to attend in person, please read the proxy
statement and vote your shares. To make it easier for you to vote, this year we
are introducing Internet and telephone voting. The instructions attached to your
proxy card describe how to use these convenient new services. Of course, if you
prefer, you can vote by mail by completing your proxy card and returning it in
the enclosed postage-paid envelope.
Sincerely,
/s/ Arthur C. Martinez
Arthur C. Martinez
<PAGE> 3
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 26, 1999
Anastasia D. Kelly
Executive Vice President
General Counsel
and Secretary
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Sears, Roebuck and Co. will hold its 1999 Annual Meeting of Shareholders
in the Penthouse Theatre on the 15th floor of the Apparel Mart, 250 Spring
Street, Atlanta, Georgia, on Thursday, May 13, 1999. The meeting will begin at
10:00 a.m. At the meeting, we will:
- Elect three directors for terms expiring at the 2002 Annual
Meeting of Shareholders;
- Ratify the recommendation of the Audit Committee that Deloitte &
Touche LLP be appointed auditors of the Company for 1999;
- Vote on the shareholder proposals set out in the proxy statement,
if they are properly introduced at the meeting; and
- Consider any other business properly presented at the meeting.
By Order of the Board of Directors,
/s/ Anastasia D. Kelly
Anastasia D. Kelly
Secretary
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO VOTE AS SOON AS
POSSIBLE BY INTERNET, TELEPHONE OR MAIL.
<PAGE> 4
PROXY STATEMENT
- --------------------------------------------------------------------------------
This proxy statement and the accompanying proxy card are being mailed to Sears
shareholders in connection with the solicitation of proxies by the Board of
Directors for the 1999 Annual Meeting of Shareholders. The mailing commenced on
or about March 26, 1999.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Questions and Answers ................................................... 2
Item 1: Election of Directors ........................................... 5
Board and Committee Information ......................................... 8
Directors' Compensation and Benefits .................................... 9
Beneficial Ownership .................................................... 10
Executive Compensation .................................................. 12
Termination of Employment and Change in Control Arrangements............. 17
Report of the Compensation Committee .................................... 20
Compensation Committee Interlocks and Insider Participation ............. 22
Performance Graph ....................................................... 23
Item 2: Appointment of Auditors ......................................... 24
Item 3: Shareholder Proposal Regarding the Classified Board ............. 24
Item 4: Shareholder Proposal Regarding Vendor Standards ................. 25
Item 5: Shareholder Proposal Regarding the CERES Principles ............. 27
Certain Transactions .................................................... 29
Other Matters ........................................................... 29
Appendix A .............................................................. A-1
<PAGE> 5
YOU ARE A "SHAREHOLDER OF RECORD" IF YOU HOLD YOUR SHARES DIRECTLY IN YOUR OWN
NAME. IF YOU HOLD YOUR SHARES INDIRECTLY IN THE NAME OF A BANK, BROKER OR OTHER
NOMINEE, YOU ARE A "STREET-NAME" SHAREHOLDER.
QUESTIONS AND ANSWERS
- --------------------------------------------------------------------------------
Q: WHO CAN VOTE?
A: You can vote if you were a shareholder at the close of business on the
record date, March 15, 1999. There were 382,441,257 common shares
outstanding on March 15, 1999.
Q: WHAT AM I VOTING ON?
A: You are voting on:
- The election of three nominees as directors for terms that expire
in 2002. The Board of Directors' nominees are Brenda C. Barnes,
Michael A. Miles and Dorothy A. Terrell.
- The ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 1999.
- The shareholder proposals described beginning on page 24, if
properly introduced at the meeting.
The three nominees for director who receive the most votes will be
elected. For any other proposal to be approved, more votes must be cast
for it than against it.
Q: HOW WILL THE PROXIES VOTE ON ANY OTHER BUSINESS BROUGHT UP AT THE
MEETING?
A: By submitting your proxy card, you authorize the proxies to use their
judgment to determine how to vote on any other matter brought before the
annual meeting. The Company does not know of any other business to be
considered at the annual meeting.
The proxies' authority to vote according to their judgment applies only
to shares you own as the shareholder of record.
Q: HOW DO I CAST MY VOTE?
A: If you hold your shares as a shareholder of record, you can vote in
person at the annual meeting or you can vote by Internet, telephone or
mail. If you are a street-name shareholder, you will receive instructions
from your bank, broker or other nominee describing how to vote your
shares.
The enclosed proxy card contains instructions for Internet, telephone and
mail voting. Whichever method you use, the proxies identified on the back
of the proxy card will vote the shares of which you are the shareholder
of record in accordance with your instructions. If you submit a proxy
card without giving specific voting instructions, the proxies will vote
those shares as recommended by the Board of Directors.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends you vote for the election of each nominee and the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors for 1999. The Board recommends you vote against each of the
shareholder proposals.
Q: CAN I REVOKE MY PROXY CARD?
A: You can revoke your proxy card by:
- Submitting a new proxy card;
- Giving written notice before the meeting to the Secretary of the
Company, stating that you are revoking your proxy card; or
- Attending the meeting and voting your shares in person.
Unless you decide to vote your shares in person, you should revoke your
prior proxy card in the same way you initially submitted it -- that is,
by Internet, telephone or mail.
Q: WHO WILL COUNT THE VOTE?
A: First Chicago Trust Company of New York, an independent tabulator, will
count the vote. Representatives of Seaway National Bank, an independent
bank, will act as the inspectors of election.
Q: IS MY VOTE CONFIDENTIAL?
A: All proxy cards (including those delivered by Internet or telephone) and
all vote tabulations that identify an individual shareholder are
confidential. Your vote will not be disclosed except:
- To allow First Chicago to tabulate the vote;
- To allow Seaway National Bank to certify the results of the vote;
and
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<PAGE> 6
- To meet applicable legal requirements.
First Chicago will transcribe any comments you write on your proxy card
and give them to the Secretary, along with your name and address.
However, First Chicago will not disclose your vote unless your vote is
included in the comment or disclosure is necessary to understand your
comment.
Q: WHAT IS A "QUORUM"?
A: A quorum is the number of shares that must be present to have the annual
meeting. The quorum requirement for the annual meeting is one-third of
the outstanding shares as of the record date, present in person or
represented by proxy. If you submit a valid proxy card or attend the
annual meeting, your shares will be counted to determine whether there is
a quorum.
Abstentions and broker non-votes count toward the quorum. "Broker
non-votes" occur when nominees (such as banks and brokers) that hold
shares on behalf of beneficial owners do not receive voting instructions
from the beneficial owners by ten days before the meeting and do not have
discretionary voting authority to vote those shares.
Q: WILL BROKER NON-VOTES OR ABSTENTIONS AFFECT THE VOTING RESULTS?
A: Although abstentions and broker non-votes count for quorum purposes, they
do not count as votes for or against a proposal and will not affect the
voting results.
Q: WHAT SHARES ARE INCLUDED ON MY PROXY CARD?
A: Your proxy card represents all shares registered to your account in the
same social security number and address, including any full and
fractional shares you own under the Sears, Roebuck and Co. Direct
Purchase Stock Plan, the Sears Associate Stock Ownership Plan or the
Sears 401(k) Profit Sharing Plan.
Q: HOW ARE SEARS COMMON SHARES IN THE SEARS 401(K) PROFIT SHARING PLAN
VOTED?
A: If you hold Sears common shares through the Sears 401(k) Profit Sharing
Plan, your proxy card will instruct the trustee of the plan how to vote
the shares allocated to your plan account. If you do not return your
proxy card (or you submit it with an unclear voting designation, or with
no voting designation at all), then the plan trustee will vote the shares
in your account in proportion to the way the other Profit Sharing Plan
participants vote their shares. Profit Sharing Plan votes receive the
same confidentiality as all other votes.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares are probably registered in more than one account. You should
vote each proxy card you receive. Sears encourages you to consolidate all
your accounts by registering them in the same name, social security
number and address, which you can do by calling Sears Shareholder
Services at (800) 732-7780 and selecting option #2.
Q: HOW MANY VOTES CAN I CAST?
A: On all matters other than the election of directors, you are entitled to
one vote per share. For the election of directors, you can "cumulate"
your votes. This means that you can cast a number of votes equal to the
number of shares you own multiplied by the number of directors to be
elected. For example, if you own 100 common shares, you could cast 300
votes for the election of directors (100 shares x 3 directors to be
elected = 300 votes). You could distribute those votes equally among the
three nominees or you could allocate some or all of your votes to one or
two nominees and cast few or no votes for the remaining nominees.
Unless you specify otherwise, your proxy card will authorize the proxies
in their discretion to cumulate the votes you are entitled to cast and to
allocate those votes among the nominees for director.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2000 ANNUAL MEETING OF
SHAREHOLDERS?
A: If you want to present a proposal from the floor at the 2000 annual
meeting, you must give the Company written notice of your proposal no
earlier than January 11, 2000 and no later than February 10, 2000. Your
notice should be sent to the General Counsel and Secretary, Sears,
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<PAGE> 7
Roebuck and Co., 3333 Beverly Road, Hoffman Estates, IL 60179. Your
notice must comply with the Company's By-Laws, the relevant portion of
which is attached as Appendix A to this proxy statement. Among other
things, the By-Laws provide that only shareholders of record can present
proposals at the meeting.
If instead of presenting your proposal at the meeting you want your
proposal to be considered for inclusion in next year's proxy statement,
you must submit the proposal in writing to the General Counsel and
Secretary so it is received at the above address by November 29, 1999.
Q: HOW IS THIS PROXY SOLICITATION BEING CONDUCTED?
A: Sears hired D.F. King to assist in the distribution of proxy materials
and solicitation of votes for a fee of $16,500, plus out-of-pocket
expenses. Sears will reimburse brokerage houses and other custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses for
forwarding proxy and solicitation materials to shareholders. In addition,
some employees of the Company and its subsidiaries may solicit proxies.
D.F. King and employees of the Company may solicit proxies in person, by
telephone and by mail. No employee of the Company will receive special
compensation for these services, which the employees will perform as part
of their regular duties.
Q: CAN I ACCESS FUTURE ANNUAL MEETING MATERIALS THROUGH THE INTERNET RATHER
THAN RECEIVING THEM BY MAIL?
A: Yes. If you vote via the Internet, you can also sign up for electronic
delivery of future proxy materials. Just follow the instructions that
appear after you finish voting at www.sears.com/vote. You will receive an
e-mail next year notifying you of the Web site containing the 1999 Annual
Report and the Proxy Statement for the 2000 annual meeting.
4
<PAGE> 8
ITEM 1: ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
Item 1 is the election of three directors to the Board of Directors. The Board
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 Board of Directors expects all nominees named below to be available for
election. In case any nominee is not available, the proxies can vote your shares
for a substitute if you have submitted your proxy card.
The directors in Class B, whose terms expire at the 1999 annual meeting, are
Brenda C. Barnes, Michael A. Miles and Dorothy A. Terrell. They have each been
nominated to serve in Class B for another term expiring in 2002. Donald H.
Rumsfeld, formerly a Class B director, retired on May 14, 1998.
The directors in Class A are serving terms that expire in 2001, and the
directors in Class C are serving terms that expire in 2000.
Information as to each Class B nominee and as to directors continuing in Classes
A and C follows.
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE THREE NOMINEES.
NOMINEES FOR DIRECTOR
CLASS B: TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS
[PHOTO OF BRENDA C. BARNES]
BRENDA C. BARNES
President and Chief Executive Officer of PepsiCola North America (beverages)
from April 1996 until January 1998. Ms. Barnes served as Chief Operating Officer
of PepsiCola North America from January 1994 to March 1996 and held other
positions with PepsiCo, Inc. from 1976 to January 1994. She is a director of
Avon Products, Inc., Starwood Hotels & Resorts and The New York Times Company
and is Vice Chair of the Board of Trustees of Augustana College.
Director since 1997. Age 45.
[PHOTO OF MICHAEL A. MILES]
MICHAEL A. MILES
Chairman of the Board and Chief Executive Officer of Philip Morris Companies
Inc. (consumer products) from September 1991 until his retirement in July 1994.
Mr. Miles is a Special Limited Partner of Forstmann Little & Co. (investment
firm). He is also a director of The Allstate Corporation, Community Health
Systems, Inc., Morgan Stanley Dean Witter & Co., Dell Computer Corp. and Time
Warner Inc. Mr. Miles is also a Trustee of Northwestern University.
Director since 1992. Age 59.
[PHOTO OF DOROTHY A. TERRELL]
DOROTHY A. TERRELL
President, Services Group, and Senior Vice President, Corporate Operations, of
Natural MicroSystems Corporation (telecommunications) 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 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.
Director since 1995. Age 53.
5
<PAGE> 9
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
CLASS A: TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS
[PHOTO OF WARREN L. BATTS]
WARREN L. BATTS
Chairman and Chief Executive Officer of Tupperware Corporation (consumer
products) from June 1996 until his retirement in September 1997, and Chairman of
Premark International, Inc. (consumer and commercial products) from May 1996
until his retirement in September 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.
Director since 1986. Age 66.
[PHOTO OF ARTHUR C. MARTINEZ]
ARTHUR C. MARTINEZ
Chairman of the Board, President and Chief Executive Officer of Sears, Roebuck
and Co. since August 1995 and Chairman and Chief Executive Officer of the former
Merchandise Group of Sears from September 1992 until August 1995. Mr. Martinez
is a director of Ameritech Corporation, the 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.
Director since 1995. Age 59.
[PHOTO OF HUGH B. PRICE]
HUGH B. PRICE
President and Chief Executive Officer of the National Urban League (social
services and welfare) since July 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.
Director since 1997. Age 57.
[PHOTO OF CLARENCE B. ROGERS, JR.]
CLARENCE B. ROGERS, JR.
Chairman of the Board of Equifax Inc. (information-based administrative
services) since October 1992, and Chief Executive Officer of Equifax Inc. from
October 1989 until December 1995. He is Chairman of the Board of Directors of
ChoicePoint, Inc. He is also a director of Briggs & Stratton Corporation, Morgan
Stanley Dean Witter & Co. and Oxford Industries, Inc.
Director since 1980. Age 69.
6
<PAGE> 10
CLASS C: TERM EXPIRING AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS
[PHOTO OF HALL ADAMS, JR.]
HALL ADAMS, JR.
Chairman of the Board and Chief Executive Officer of Leo Burnett Company, Inc.
(advertising) from January 1987 until his retirement in January 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.
Director since 1993. Age 65.
[PHOTO OF ALSTON D. CORRELL, JR.]
ALSTON D. CORRELL, JR.
Chairman of the Board, Chief Executive Officer and President of Georgia-Pacific
Corporation (building products, pulp and 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 and held other executive
positions with Georgia-Pacific from 1988 to May 1993. He is also a director of
SunTrust Banks, Inc. and The Southern Company and is a member of the Board of
Governors of the Nature Conservancy and the Board of Councilors of The Carter
Center.
Director since 1996. Age 57.
[PHOTO OF RICHARD C. NOTEBAERT]
RICHARD C. NOTEBAERT
Chairman of the Board, President and Chief Executive Officer of Ameritech
Corporation (telephone, data and video communications) 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
held other executive positions with Ameritech from 1986 to January 1993. 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.
Director since 1996. Age 51.
[PHOTO OF PATRICK G. RYAN]
PATRICK G. RYAN
Chairman of the Board and Chief Executive Officer of Aon Corporation (insurance
products and other financial 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.
Director since 1997. Age 61.
7
<PAGE> 11
IN ADDITION TO ATTENDING BOARD AND COMMITTEE MEETINGS, DIRECTORS FREQUENTLY
COMMUNICATE WITH MR. MARTINEZ AND THE COMPANY'S ADVISORS.
BOARD AND COMMITTEE INFORMATION
- --------------------------------------------------------------------------------
The Board of Directors and three committees of the Board govern Sears. During
1998, the Board met six times. Directors discharge their responsibilities
throughout the year at Board and committee meetings and also through
considerable telephone contact and other communications with Mr. Martinez and
other key executives, as well as with external advisors such as legal counsel,
outside auditors and investment bankers.
The average attendance at Board and committee meetings was 93% in 1998. No
director attended fewer than 75% of the meetings of the Board and of the
committees of which the director was a member in 1998 except for Mr. Ryan, who
was overseas on two 1998 meeting dates.
The following table identifies the membership of the Audit, Compensation and
Nominating Committees and states the number of committee meetings held during
1998. A summary of each committee's responsibilities follows the table.
DIRECTOR AUDIT COMPENSATION NOMINATING
- -------- ----- ------------ ----------
Hall Adams, Jr. X X
Brenda C. Barnes X X
Warren L. Batts X * X
Alston D. Correll, Jr. X X
Michael A. Miles X X *
Richard C. Notebaert X X
Hugh B. Price X X
Clarence B. Rogers, Jr. X * X
Patrick G. Ryan X X
Dorothy A. Terrell X X
No. of Meetings in 1998 5 5 3
* Committee Chair
AUDIT COMMITTEE FUNCTIONS
- - Review the Company's annual financial statements and make recommendations
to the Board on appointment of independent auditors and the scope of
audits.
- - Advise the Board with respect to recommendations by the internal auditors
and independent accountants regarding the Company's accounting methods
and controls.
- - Review reports from the Company's compliance office concerning
management's compliance with Company ethics policies and applicable law.
- - Review the status of material litigation involving the Company.
COMPENSATION COMMITTEE FUNCTIONS
- - Approve the compensation of the Chief Executive Officer and other
officers of the Company.
- - Administer all benefit plans, including stock option plans, that affect
officers' compensation.
- - Review the design, funding and investment policies of the Company's
employee benefit plans.
NOMINATING COMMITTEE FUNCTIONS
- - Evaluate the performance of the Board of Directors and the Chairman and
Chief Executive Officer.
- - Review succession plans for the Chairman and Chief Executive Officer.
- - Make recommendations to the Board concerning the composition of the
Board, the compensation of directors, the election of executive officers
and the procedures for shareholder voting.
- - Review the Company's corporate governance guidelines.
8
<PAGE> 12
You can recommend a director candidate to the Nominating Committee, and the
committee will evaluate the candidate's qualifications. Alternatively, you can
nominate a candidate for election to the Board by complying with the nomination
procedures in the Company's By-Laws. If you want to submit a nomination, you
should review the By-Law requirements on nominations by shareholders, which are
included in the excerpt from the By-Laws that is attached in Appendix A to this
proxy statement. The Company must receive your nomination of a candidate for
director for the 2000 annual meeting no earlier January 11, 2000 and no later
than February 10, 2000.
FOR ADDITIONAL INFORMATION ON HOW TO NOMINATE A CANDIDATE FOR ELECTION TO THE
BOARD, CONTACT THE GENERAL COUNSEL AND SECRETARY, SEARS, ROEBUCK AND CO., 3333
BEVERLY ROAD, HOFFMAN ESTATES, ILLINOIS 60179.
DIRECTORS' COMPENSATION AND BENEFITS
- --------------------------------------------------------------------------------
In order to align directors' interests with shareholders' interests, directors'
compensation is paid in the form of deferred shares, stock options and cash.
- - Each year, the Company grants to each director deferred shares valued at
$30,000. The deferred shares vest over the twelve-month period following
the grant date. The directors receive their vested deferred shares when
they leave the Board.
- - The Company annually grants each director an option to purchase Sears
common shares. The option is valued at $30,000 and vests over the
twelve-month period following the grant date. The option exercise price
equals the fair market value of the underlying shares on the grant date.
- - The Company pays each director an annual $30,000 cash retainer, payable
in quarterly installments. The Company pays the chairpersons of the
Audit, Compensation and Nominating Committees an additional annual cash
retainer of $5,000.
The actual number of deferred shares and option shares granted each year depends
on the price of Sears common shares on the grant date. On May 14, 1998, the
Company granted each director 486 deferred shares and an option to buy 1,458
shares at an exercise price of $61.72.
Non-employee directors who were first elected to the Board prior to December 31,
1995 will receive $30,000 annually after they retire from the Board pursuant to
the Non-Employee Director Retirement Plan. That plan was terminated in 1995.
9
<PAGE> 13
BENEFICIAL OWNERSHIP
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Sears Common Sum of Common Shares
Sears Common Share Plus Common Share
Name (a) Shares Equivalents (b) Equivalents
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hall Adams, Jr. 8,722(c) -- 8,722
Brenda C. Barnes 3,946(d) -- 3,946
Warren L. Batts 9,323(c) 26,746 36,069
Alston D. Correll, Jr. 7,150(e) 1,556 8,706
Arthur C. Martinez 1,021,439(f) -- 1,021,439
Michael A. Miles 10,991(c) 7,559 18,550
Richard C. Notebaert 6,635(g) 1,208 7,843
Hugh B. Price 4,210(h) 1,049 5,259
Clarence B. Rogers, Jr. 12,419(c) 31,498 43,917
Patrick G. Ryan 5,192(h) 480 5,672
Dorothy A. Terrell 8,773(c) -- 8,773
Alan J. Lacy 213,199(i) -- 213,199
Robert L Mettler 406,543(j) 2,656 409,199
William L. Salter 79,349(k) 5,598 84,947
Richard J. Srednicki 2,216 -- 2,216
All directors and 2,579,066(l) 78,350 2,657,416
executive officers as a group
</TABLE>
NOTES TO SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS TABLE:
(a) Ownership is as of January 29, 1999 and includes:
- Shares in which the director or executive officer may be deemed to
have a beneficial interest; and
- Shares held as nontransferable restricted shares, which are
subject to forfeiture under certain circumstances.
Each director and executive officer has sole voting and investment power
with respect to the common shares listed on the table next to his or her
name, except that voting or investment power is shared as follows:
Brenda C. Barnes 1,000 shares
Richard C. Notebaert 100 shares
Hugh B. Price 18 shares
Patrick G. Ryan 1,000 shares
(b) Common share equivalents represent fees deferred by directors and salary
and bonuses deferred by officers at the individual director's or
officer's request. Deferred amounts are converted into common share
equivalents, the value of which mirrors the value of Sears common shares.
Common share equivalents are paid out in cash when the director or
officer ceases to serve as a director or officer. Accordingly, the
amounts ultimately realized by the directors and officers will reflect
all changes in the market value of Sears common shares from the date of
deferral until the date of payout.
(c) Includes 1,948 vested deferred shares and 5,675 shares subject to option.
(d) Includes 798 vested deferred shares and 2,148 shares subject to option.
(e) Includes 1,509 vested deferred shares and 4,641 shares subject to option.
(f) Includes 915,928 shares subject to option and 1,006 shares credited to
Mr. Martinez's account in the Sears 401(k) Profit Sharing Plan.
(g) Includes 1,664 vested deferred shares and 4,871 shares subject to option.
(h) Includes 1,055 vested deferred shares and 3,137 shares subject to option.
10
<PAGE> 14
(i) Includes 156,121 shares subject to option and 409 shares credited to Mr.
Lacy's account in the Sears 401(k) Profit Sharing Plan.
(j) Includes 359,950 shares subject to option and 752 shares credited to Mr.
Mettler's account in the Sears 401(k) Profit Sharing Plan.
(k) Includes 61,011 shares subject to option and 928 shares credited to
Mr.Salter's account in the Sears 401(k) Profit Sharing Plan.
(l) Includes 15,820 vested deferred shares, 2,248,557 shares subject to
option and 13,829 shares credited to executive officers' accounts in the
Sears 401(k) Profit Sharing Plan.
To the knowledge of the Company, as of January 29, 1999 and excluding common
share equivalents, no director or executive officer had a beneficial interest in
more than 0.27% of Sears outstanding common shares, and all directors and
executive officers together beneficially owned an aggregate of 0.67% of Sears
outstanding common shares.
James R. Clifford, an executive officer of the Company, also owns 1,000 common
shares of Sears Canada Inc., a subsidiary of the Company.
SECURITY OWNERSHIP OF 5% SHAREHOLDERS
<TABLE>
<CAPTION>
Amount and Nature of Percent
Beneficial Ownership: of
Name and Address Sears Common Shares (a) Class
- --------------------------------------------------------------------------------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc 19,745,082 (b) 5.2%
1 North Lexington Avenue
White Plains, New York 10601
State Street Bank and Trust Company 32,890,236 (c) 8.6%
One International Place
Boston, Massachusetts 02110
</TABLE>
NOTES TO SECURITY OWNERSHIP OF 5% SHAREHOLDERS TABLE:
(a) Beneficial ownership is based on the Schedule 13G most recently filed by
the shareholder. 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) Sanford C. Bernstein & Co., Inc. held these shares on behalf of
individual and institutional clients.
(c) State Street Bank and Trust Company, Trustee under The Sears 401(k)
Profit Sharing Trust Agreement, held these shares on behalf of
participants in the Profit Sharing Plan. The number shown excludes
5,639,269 Sears common shares held for other clients.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require the Company to
disclose late filings of stock transaction reports by its directors and
executive officers. Based solely on a review of reports filed by the Company on
these individuals' behalf and written representations from them that no other
reports were required, all Section 16(a) filing requirements were met during
fiscal 1998, except that the Company, as a result of administrative oversight,
filed the following late reports: Jeffrey N. Boyer (amended Form 3 correcting
number of shares owned directly and indirectly); Gary L. Crittenden (amended
Form 3 correcting total number of shares owned); Robert L. Mettler (Form 4
reporting exercise of a stock option); Hugh B. Price (amended Form 5 correcting
total number of common share equivalents owned); William L. Salter (amended Form
5 correcting the total number of common shares owned); and John T. Sloan (Form 5
reporting ownership of shares omitted from previously filed Form 3).
11
<PAGE> 15
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
The following Summary Compensation Table shows compensation information for Mr.
Martinez, Sears Chairman, President and Chief Executive Officer, and the four
other executive officers who were most highly compensated in 1998 (the "Named
Officers"). The Board of Directors designates executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------- ------------------------ -------
Restricted Securities
Other Annual Share Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options/ Payouts Comp.
Principal Position Year ($) ($) ($)(a) ($)(b) SARs(#) ($)(c) ($)(d)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez 1998 1,150,000 980,088 245,987 -- 137,515 -- 7,000
Chairman, President 1997 1,125,000 -- 511,974 -- 500,000 771,093 6,650
& CEO 1996 1,100,000 1,890,900 509,805 -- 33,870 -- 6,300
Alan J. Lacy 1998 488,329 613,176 3,000 1,226,563 53,000 -- 7,000
Chief Financial Officer 1997 447,500 -- 1,401 1,028,346(e) 100,000 233,583 6,650
& President, Credit 1996 440,000 588,280(f) 1,171 -- 6,876 -- 6,300
Robert L. Mettler 1998 707,000 204,864 5,626 -- 51,000 -- 7,000
President, Merchandising - 1997 700,000 244,104 1,829 1,683,900(e) 100,000 360,159(f) 6,650
Full-Line Stores 1996 675,000 874,125 1,848 -- 17,838 -- 6,300
William L. Salter 1998 375,000 286,875 2,533 -- 28,000 -- 7,000
President, 1997 370,000 266,193 1,681 -- 98,094 187,986(f) 6,650
Home Stores 1996 350,000 453,250(f) 830 -- 9,632 -- 6,300
Richard J. Srednicki 1998 260,273 625,000(g) -- 80,176 109,849 -- --
President, 1997 -- -- -- -- -- -- --
Home Services 1996 -- -- -- -- -- -- --
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE:
(a) For Mr. Martinez, "Other Annual Compensation" consists primarily of
above-market interest on deferred compensation and also includes tax
gross-up payments, personal use of Company aircraft, non-business ground
transportation and financial planning. For the other Named Officers,
"Other Annual Compensation" consists of tax gross-up payments.
(b) Restricted share awards are valued at the closing price of Sears common
shares on the date of grant. The Company pays dividends on restricted
shares at the same rate paid to all shareholders.
On December 31, 1998, the Named Officers owned the restricted shares set
forth in the table below, which includes the restricted shares described
in footnotes (e) and (f). The market value is based on the closing price
of Sears common shares on December 31, 1998, which was $42.50.
<TABLE>
<CAPTION>
Mr. Martinez Mr. Lacy Mr. Mettler Mr. Salter Mr.Srednicki
------------ -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Number of Shares -- 43,299 30,000 2,884 1,666
Market Value -- $1,840,208 $1,275,000 $122,570 $70,805
</TABLE>
(c) Long-term incentive awards were earned under the 1996-97 cycle of the
long-term incentive plan. Each Named Officer earned his payout for the
1996-97 cycle as follows:
<TABLE>
<CAPTION>
Mr. Martinez Mr. Lacy Mr. Mettler Mr. Salter Mr.Srednicki
------------ -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1996 510,197 154,605 237,178 122,981 --
1997 260,896 78,977 122,981 65,005 --
------- ------- ------- ------
1996-97 Cycle 771,093 233,583 360,159 187,986 --
</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 1998-99 cycle based in part on the
remaining 50% of his 1997 salary.
12
<PAGE> 16
(d) These amounts represent the Company's matching contributions under the
Sears 401(k) Profit Sharing Plan and under the Company's nonqualified
Management Supplemental Deferred Profit Sharing Plan.
(e) 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 19.
(f) Named Officers can elect to swap a portion of their annual bonuses or
long-term incentives for restricted Sears common shares. In exchange for
a Named Officer's electing to receive restricted shares in lieu of cash,
the Company grants an additional 20% premium on the portion of the bonus
or incentive the Named Officer swaps. The premium is paid in restricted
shares. A summary of the Named Officers' equity swaps follows:
- Mr. Lacy elected to swap 25% of his 1996 bonus ($147,070) for
restricted shares having a fair market value of $53.50 per share
on February 28, 1997 (the date of grant) and vesting on February
28, 2000. The Company added a 20% premium (restricted shares
valued at $29,414) on the portion of Mr. Lacy's bonus that he
elected to swap.
- Mr. Mettler elected to swap 100% of the 1997 portion of his
long-term incentive ($122,981) for restricted shares having a fair
market value of $57.10 per share on March 13, 1998 (the date of
grant) and vesting on March 13, 2001. The Company added a 20%
premium (restricted shares valued at $24,596) on the portion of
Mr. Mettler's long-term incentive payout that he elected to swap.
- Mr. Salter elected to swap 25% of the 1997 portion of his
long-term incentive ($16,251) for restricted shares having a fair
market value of $57.10 per share on March 13, 1998 (the date of
grant) and vesting on March 13, 2001. He also elected to swap 25%
of his 1996 bonus ($113,313) for restricted shares having a fair
market value of $53.50 per share on February 28, 1997 (the date of
grant) and vesting on February 28, 2000. The Company paid a 20%
premium (restricted shares valued at $3,250 and $22,663,
respectively) on the portions of Mr. Salter's 1997 long-term
incentive payout and 1996 bonus that he elected to swap for
restricted stock.
(g) Pursuant to the terms of his employment offer, Mr. Srednicki received
$200,000 of this amount as a sign-on bonus.
13
<PAGE> 17
STOCK OPTIONS
The following table summarizes all stock options the Board granted to the Named
Officers during 1998. Individual grants are listed separately for each Named
Officer. The table also shows the estimated present value of each grant as of
the date the option was granted.
OPTION/SARGRANTS IN 1998
<TABLE>
<CAPTION>
Individual Grants(a)
------------------------------------------------------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise Grant Date
SARs Employees or Base Expiration Present
Name Granted in 1998 Price($) Date Value($)(b)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez 137,515 3.32% 47.10 02/02/08 2,029,721
Alan J. Lacy 53,000 1.28% 47.10 02/02/08 782,280
Robert L. Mettler 51,000 1.23% 47.10 02/02/08 752,760
8,908(c) 0.21% 46.44 01/31/05 129,166
William L. Salter 28,000 0.68% 47.10 02/02/08 413,280
Richard J. Srednicki 109,849 2.65% 47.63 08/12/08 1,523,606
</TABLE>
NOTES TO OPTION/SAR GRANTS TABLE:
(a) All options become exercisable in three equal annual installments. The
option exercise price equals the fair market value of a common share on
the date of grant. The options include tax withholding rights, which
permit the option holder to elect to have shares withheld to satisfy tax
withholding requirements. The option holder can pay the option exercise
price by tendering Sears common shares, which in turn gives the option
holder the right to purchase the same number of shares tendered at a
price equal to the fair market value on the exercise date. The options 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 -- 1.95%
(1.93% for Mr. Srednicki's grant); expected volatility -- 28%; risk-free
interest rate -- 5.62% (4.52% for Mr. Srednicki's grant); and an option
exercise date 6 years from the date of grant (the expected life of the
option). With respect to the grant described in footnote (c), the
Black-Scholes value was calculated based on the above assumptions except
the assumed dividend yield was 1.98%. The actual value realized may vary
significantly from these estimated values and will ultimately depend upon
the excess of the stock price over the exercise price on the date the
option is exercised.
(c) Represents an option granted to replace the shares Mr. Mettler tendered
to the Company, in lieu of cash, to purchase shares upon exercise of the
original option.
14
<PAGE> 18
The following table shows options that Named Officers exercised during 1998 and
the number of shares and the value of grants outstanding as of January 4, 1999
for each Named Officer.
AGGREGATED OPTION/SAR EXERCISES IN 1998 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
01/04/99 01/04/99(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 -- -- 858,800 648,805 17,730,893 0
Alan J. Lacy -- -- 136,163 155,292 1,946,783 0
Robert L. Mettler 21,000(b) 561,540 335,611 165,854 6,248,913 0
William L. Salter -- -- 52,693 119,942 409,127 0
Richard J. Srednicki -- -- -- 109,849 0 0
</TABLE>
NOTES TO OPTION/SAR EXERCISES TABLE:
(a) Value of unexercised, in-the-money options based on the fair market value
of a Sears common share of $42.50 as of the last trading day of the
Company's fiscal year.
(b) Mr. Mettler acquired these shares by tendering shares in lieu of cash in
exercising an option. In accordance with the terms of the option, by
tendering shares instead of cash he received a new option to replace the
shares tendered, as shown in the "Option/SAR Grants in 1998" table on
page 14 (footnote (c)).
LONG-TERM PERFORMANCE PLAN
The performance criteria in the Company's Long-Term Performance Plan measure
increases in customer satisfaction, associate satisfaction and the Company's
financial performance over a multi-year performance cycle. The Company
established goals for the performance measures at the beginning of the current
performance cycle (1998-1999). The actual payout that executives will earn under
the current cycle is based on the degree to which the Company achieves those
goals.
LONG-TERM INCENTIVE PLAN - AWARDS IN 1998
(TO BE PAID IN MARCH 2000)
<TABLE>
<CAPTION>
Estimated Future Payouts
Performance or Under Non-Stock Price-Based Plans(a)
Other Period Until -----------------------------------------
Name Maturation or Payout Threshold($) Target($) Maximum($)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arthur C. Martinez 1/1/98 through 12/31/99 462,100 924,200 1,386,300
Alan J. Lacy 1/1/98 through 12/31/99 177,519 355,038 532,557
Robert L. Mettler 1/1/98 through 12/31/99 267,120 534,240 801,360
William L. Salter 1/1/98 through 12/31/99 141,562 283,125 424,687
Richard J. Srednicki 1/1/98 through 12/31/99 256,387 512,774 769,161
</TABLE>
NOTE TO LONG-TERM INCENTIVE PLAN TABLE:
(a) Awards are paid in the form of Sears common shares. The Company sets
target awards for participants at the beginning of each performance
cycle, based on goals and a percentage of estimated aggregate salary
during the performance cycle. Actual awards are based on the achievement
of goals and the actual salary the individual earned during the cycle, to
the extent permitted by appropriate tax authority. The maximum award for
a participant is 150% of target.
THE PERFORMANCE CRITERIA IN THE LONG-TERM PERFORMANCE PLAN ARE DESIGNED TO
PROVIDE INCENTIVES TO LONG-TERM PERFORMANCE PLAN PARTICIPANTS TO MAKE SEARS A
"COMPELLING PLACE TO SHOP, WORK AND INVEST."
15
<PAGE> 19
ANNUAL RETIREMENT BENEFITS UNDER THE BASIC AND SUPPLEMENTAL PENSION PLANS ARE
GENERALLY PAYABLE IN MONTHLY INSTALLMENTS FOR LIFE.
PENSION PLAN
- --------------------------------------------------------------------------------
The Company maintains basic and supplemental pension plans that, subject to
vesting conditions, provide retirement benefits for all full-time and certain
part-time United States associates of the Company and its subsidiaries. Annual
retirement benefits under the pension plans are currently based upon credited
years of service and the average annual cash compensation of the associate's
highest five successive calendar years of earnings out of the ten years
immediately preceding termination of employment ("final average annual
compensation"). "Cash compensation" for pension plan purposes generally consists
of salary and annual bonus. In the case of the Named Officers, it consists of
the amounts shown in the salary and bonus columns in the Summary Compensation
Table on page 12.
In 1995, the Company changed the manner of computing retirement benefits for
years of service 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. Benefits accrued through December 31, 1988
are reduced by a portion of the participant's estimated social security
benefits.
As of December 31, 1998, and rounded to the nearest whole number, credited years
of service under the pension plans for the Named Officers were as follows:
Arthur C. Martinez, 16; Alan J. Lacy, 3; Robert L. Mettler, 8; William L.
Salter, 32; and Richard J. Srednicki, 2.
- - Mr. Martinez's credited years of service include 10 years credited under
his employment contract, the term of which expired in 1995. In addition,
Mr. Martinez became eligible to participate in the pension plans
immediately upon signing his employment agreement, without having to
complete the normal one-year waiting period prior to eligibility.
- - Mr. Mettler's credited years of service include four years credited under
his employment agreement, the term of which expired in 1996. Mr.
Mettler's employment agreement also provides that his pension benefit
will not be less than $125,000 per year if he remains employed with the
Company through February 14, 2003. If he is terminated without cause,
dies or becomes disabled prior to February 14, 2003, this guaranteed
minimum will be prorated.
- - Mr. Srednicki's credited years of service accrued pursuant to the terms
of his employment offer, which provides that he will accrue two years of
credited service in each of the first five years of his employment with
Sears.
The Pension Plan Table below 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, 1999 at age
65. The table also assumes that benefits will be payable over the participant's
lifetime with no survivor benefits.
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 $147,900 $229,100 $ 385,500 $ 553,200
$1,650,000 122,700 245,400 380,200 640,000 918,100
$2,300,000 171,500 342,900 531,300 894,400 1,283,100
$2,950,000 220,200 440,400 682,400 1,148,900 1,648,100
$3,600,000 269,000 537,900 833,600 1,403,400 2,013,100
</TABLE>
16
<PAGE> 20
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS
- --------------------------------------------------------------------------------
OFFICERS' AGREEMENTS
The Named Officers have entered into agreements with the Company that require
the Named Officers to maintain the confidentiality of information concerning the
Company's business. The agreements also prohibit the Named Officers from working
for a competitor of the Company for two years after their employment with the
Company ends (three years for Mr. Martinez). Under the agreements, if the
Company terminates a Named Officer's employment without cause, the Named Officer
will receive the following benefits (to the extent deductible on the Company's
federal tax returns):
- - Two years of salary continuation (three years for Mr. Martinez), which
includes annual base pay and annual bonus target in the year the Named
Officer's employment with the Company ends;
- - All Company benefits during the salary continuation period; and
- - Continued vesting of stock options during the salary continuation period.
After the first year, salary continuation payments will be reduced by the amount
of any compensation and benefits the Named Officer receives from other
employment.
CERTAIN STOCK OPTION AND RESTRICTED SHARES PROVISIONS
This section describes the material terms of the stock options, restricted
shares, performance-based stock options and performance-based restricted shares
held by the Named Officers as of January 31, 1999.
STOCK OPTIONS
The options the Company granted to the Named Officers in 1998 vest in three
equal annual installments and remain exercisable until the tenth anniversary of
the grant date. The vesting rule is subject to the following exceptions:
- - A pro-rated portion of the options will vest upon a Named Officer's
normal retirement at age 65, his Company-approved early retirement or his
death or permanent disability.
- - 100% of the options will vest upon a change in control of the Company.
The Company can terminate all outstanding stock options, vested and unvested, if
it merges with another entity or enters into certain other extraordinary
transactions. In the event of such a transaction, the Company must make one of
three equitable adjustments to the outstanding options:
- - Replace the options with equivalent options for shares in the new entity;
- - Accelerate the vesting of options so that they are exercisable prior to
the transaction; or
- - Pay in cash the difference between the exercise price of the options and
the market price of the stock underlying the options -- whether vested or
unvested -- on the date of the transaction.
A STOCK OPTION IS A RIGHT TO BUY SEARS COMMON SHARES IN THE FUTURE AT A PRICE
EQUAL TO THE TRADING PRICE OF SEARS COMMON SHARES ON THE DATE THE COMPANY GRANTS
THE OPTION.
17
<PAGE> 21
IF A NAMED OFFICER CEASES TO BE EMPLOYED BY THE COMPANY BEFORE HE BECOMES
ENTITLED TO EXCHANGE HIS RESTRICTED SHARES OR HIS PERFORMANCE-BASED RESTRICTED
SHARES, HE WILL FORFEIT THOSE SHARES.
RESTRICTED SHARES
Restricted shares are Sears common shares that cannot be sold or otherwise
transferred. A Named Officer or his estate can exchange his restricted shares
(other than performance-based restricted shares) for unrestricted shares upon:
- - The third anniversary of the date of grant;
- - Retirement at age 65;
- - Early retirement with Company approval after age 60;
- - Death;
- - Permanent disability; or
- - A change in control of the Company.
Under a policy of the Sears Compensation Committee, a holder of restricted
shares who retires before age 60 is permitted to exchange a pro-rated portion of
the restricted shares for unrestricted shares.
PERFORMANCE-BASED STOCK OPTIONS
In 1997, the Company granted performance-based stock options to Mr. Martinez,
Mr. Lacy, Mr. Mettler and Mr. Salter. Subject to the performance-based vesting
conditions described below, the performance-based options become exercisable in
three installments, one-half on the sixth anniversary of the date the options
were granted and one-quarter on each of the seventh and eighth anniversaries. A
Named Officer must remain employed by the Company through the vesting date to be
able to exercise his performance-based option.
In addition to the time-based vesting requirements, the performance-based
options are subject to the following provisions:
- - 50% of each installment will become exercisable if prior to March 12,
2001 the daily average price for Sears common shares is at least $75.00
per share for 20 consecutive trading days (the "50% condition"); and
- - 100% of each installment will become exercisable if prior to March 12,
2003 the daily average price for Sears common shares is at least $100.00
per share for 20 consecutive days (the "100% condition").
In addition, a pro-rated portion of the performance-based options will become
exercisable under the circumstances described below. The number of "Pro-Rated
Options" will be calculated by multiplying the total number of shares underlying
the performance-based option held by the applicable Named Officer by a fraction,
the numerator of which will be the number of months that elapse between the
grant date and the date the applicable Named Officer's employment terminates and
the denominator of which will be 96 (the number of months required for full
lapse of time vesting).
- - A Named Officer's Pro-Rated Options will become exercisable upon normal
retirement (age 65), Company-approved early retirement, death or
permanent disability.
- - A Named Officer's Pro-Rated Options will become exercisable after a
change in control if (i) the Named Officer and the Company mutually agree
to end his employment or (ii) the Named Officer resigns because his job
responsibilities or salary change significantly.
- - 100% of a Named Officer's option will become exercisable if, following a
change in control of the Company, the Company without cause terminates
the Named Officer's employment.
Notwithstanding the foregoing vesting rules, the options and Pro-Rated Options
will become exercisable only when and to the extent that the 50% condition or
the 100% condition has been satisfied.
If the Company undergoes a change in control, for 60 days following the change
in control, the Named Officers will have stock appreciation rights with respect
to their vested performance-based options.
The Company can terminate all outstanding performance-based options, vested and
unvested, if it merges with another entity or enters into certain other
extraordinary transactions. In the event of such a transaction, the Company must
make one of three equitable adjustments to the outstanding performance-based
options:
- - Replace the options with equivalent options for shares in the new entity;
- - Accelerate the vesting of the options so that they are exercisable prior
to the transaction; or
- - Pay in cash the difference between the exercise price of the options and
the market price of the stock underlying the options - whether vested or
unvested - on the date of the transaction.
18
<PAGE> 22
PERFORMANCE-BASED RESTRICTED SHARES
In 1997, the Company granted performance-based restricted shares to Mr. Lacy and
Mr. Mettler. The performance-based restricted shares become exchangeable for
unrestricted shares as follows:
- - 50% of Mr. Lacy's and Mr. Mettler's restricted shares will become
exchangeable for unrestricted shares on the dates specified below if the
50% condition is satisfied.
- - 100% of Mr. Lacy's and Mr. Mettler's restricted shares will become
exchangeable on the dates specified below if the 100% condition is
satisfied.
Subject to satisfying the 50% condition and the 100% condition, Mr. Lacy's
performance-based restricted shares will become exchangeable for unrestricted
shares on March 12, 2007 and Mr. Mettler's will become exchangeable on March 12,
2003. In addition, a pro-rated portion of the restricted shares will become
exchangeable under the circumstances described below. The number of "Pro-Rated
Restricted Shares" will be calculated by multiplying the total number of
performance-based restricted shares owned by Mr. Lacy or Mr. Mettler, as
applicable, by a fraction, the numerator of which will be the number of months
that elapse between the grant date and the date the employment of Mr. Lacy or
Mr. Mettler, as applicable, terminates and the denominator of which will be the
number of months required for full vesting of his performance-based restricted
shares (120 for Mr. Lacy and 72 for Mr. Mettler).
- - The applicable officer's Pro-Rated Restricted Shares will become
exchangeable for unrestricted shares upon normal retirement (age 65),
Company-approved early retirement, death or permanent disability.
- - The applicable officer's Pro-Rated Restricted Shares will become
exchangeable after a change in control if (i) he and the Company mutually
agree to end his employment or (ii) he resigns because his job
responsibilities or salary change significantly.
- - 100% of the applicable officer's restricted shares will become
exchangeable if, following a change in control of the Company, the
Company without cause terminates his employment.
Notwithstanding the foregoing vesting rules, the performance-based restricted
shares and Pro-Rated Restricted Shares will become exercisable only when and to
the extent that the 50% condition or the 100% condition has been satisfied.
19
<PAGE> 23
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 a significant portion of
pay delivered through variable pay plans. Those plans require the Company
to achieve financial performance targets the Compensation Committee
established to create shareholder value. In 1995, the Company began a
three-year program to increase the portion of executives' and managers'
compensation that is at-risk. As a result of keeping increases in base
salary below market and increasing target incentive compensation, at-risk
pay now comprises the desired percentage of total compensation
established by the Company.
- - SHAREHOLDER ALIGNMENT
Executives' pay should place their interests more in line with
shareholders' interests. The payout formulas in the Company's
compensation programs are performance-based. In addition, the Company has
increased the percentage of executive compensation paid in the form of
Sears shares and decreased the percentage paid in cash. The objective of
this compensation strategy is to encourage 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, the Company's pay practices at all levels should emphasize
the primacy of Sears core customer. Those practices must reinforce Sears
commitment to providing her with the products and services she wants.
Accordingly, a portion of executives' and managers' at-risk pay is
determined by the customer's assessment of how well Sears is meeting her
needs.
- - MANAGEMENT DEVELOPMENT
Compensation programs must attract and retain the talented people
necessary to meet the Company's current and future leadership needs. Pay
practices must clearly signal to Sears associates that Sears values them,
their talents and their ideas as assets to be invested in, rather than
costs to be minimized. Sears associates, however, must be capable of
achieving performance goals while simultaneously introducing innovative
ideas. The Company designed its pay practices to attract
achievement-oriented people 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 approves the terms and conditions of employment for
executive officers and administers the compensation programs for these officers.
In addition, the Committee oversees benefit plans covering all associates,
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 Sears executive compensation. The Committee
selects comparison companies based on their total shareholder returns or the
similarity of their lines of business to those 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. The compensation peer group
is not identical to the companies included in the S&P Retail Stores Composite
Index or the S&P Retail Department Stores Index used for the Performance Graph
on page 23, although some companies are in both the compensation peer group and
one or both of the Indexes.
20
<PAGE> 24
PERFORMANCE-BASED
EQUITY INCENTIVES
To emphasize Sears commitment to creating greater shareholder value, in 1997 the
Company granted performance-based stock options and restricted common shares to
certain members of the Company's management executive committee, which is
composed of the Company's most senior officers. The options will become
exercisable and the restricted shares will vest only if Sears common shares
reach specified prices within specified periods of time. In February 1999, the
Compensation Committee amended the 1997 performance-based options and restricted
shares to extend by one year the dates for meeting the price tests. The
Committee also extended the related vesting schedules for the options and
restricted shares. The material terms of those options and restricted shares are
described on pages 18 and 19.
BASE SALARY
The Committee annually reviews the base salaries of executive officers. The
Committee evaluates management's salary recommendations based on the results
achieved by each executive officer, as well as competitive salary practices. As
the Committee has increased executive officers' potential annual bonuses, the
Committee again in 1998 kept increases in base salary below market levels.
ANNUAL BONUS
In 1998, the Board approved annual target incentives that were designed to
provide bonuses at the 75th percentile of peer group compensation if the
Company's earnings-per-share improved a specific amount over the prior year. For
officers with Company-wide responsibilities, the entire bonus was based on
growth of earnings-per-share. For those in business units, one-half of the bonus
was based on growth of earnings-per-share, with the remainder based on business
unit income goals.
The Company assigned bonus targets for each officer based on competitive
practice. Actual bonuses will be more or less than targeted depending on Company
and business unit performance. In addition, if the officer does not meet the
personal objectives established at the beginning of the year, 20% of the actual
award will be subject to forfeiture.
Officers can elect to receive all or a portion of their annual bonus in the form
of restricted shares, which vest in three equal annual installments. (Restricted
shares received pursuant to this election prior to 1999 vest at the end of the
three-year period.) Officers who elect to receive restricted shares in lieu of
some or all of their cash bonus award will receive a 20% premium on the portion
of their bonus that they take in restricted shares. The premium vests at the end
of three years.
LONG-TERM PERFORMANCE PLAN
The Company awards stock (or in certain cases stock options) to officers
participating in this plan based on the Company's performance over multiple year
cycles. The Company sets target award levels at the median of the peer group.
Plan participants receive awards if Sears achieves certain targets, as measured
by a strategic performance index called the Total Performance Indicators. This
index, which the Committee established, measures the Company's progress towards
making Sears a "Compelling Place to Shop, Work and Invest." In 1998, the
Committee refined the Total Performance Indicators for the 1998-1999 performance
cycle.
Officers may elect to receive all or a portion of their long-term incentive
award in the form of restricted shares, which vest in three equal annual
installments. (Restricted shares received pursuant to this election prior to
1999 vest at the end of the three-year period.) Officers who elect to receive
restricted shares in lieu of some or all of their incentive award will receive a
20% premium on the portion of their award that they take in restricted shares.
The premium vests at the end of three years.
STOCK OPTIONS
Stock options have been an integral part of executive compensation for many
years. The Committee targets stock option grants at the median competitive
level. The option exercise price is equal to the market price on the grant date.
The Committee generally grants options annually.
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<PAGE> 25
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 225 members of the Company's 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 management executive
committee to an amount equal to base salary for the other management team
members. Associates have five years to acquire sufficient shares to meet the
minimum levels. Shares are valued at the higher of original cost or current
market price. Unexercised stock options do not count toward meeting the stock
ownership guidelines.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Federal tax law limits the Company's tax deduction for annual compensation paid
to the Named Officers to $1 million per person, 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 tax
limits. 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. Mr. Martinez has agreed to defer the portion
of his 1998 base salary that exceeds $1 million until after he retires.
CEO COMPENSATION
Mr. Martinez's salary, annual bonus, stock option grants and long-term
performance plan awards generally follow the policies described above. Amounts
paid and granted under these plans are disclosed in the compensation tables
beginning on page 12.
In 1998, the Committee approved a 2.2% increase in Mr. Martinez's base salary
from $1,125,000 to $1,150,000. This increase was held below competitive market
level base salary increases as the Company moved toward the 75th percentile for
at-risk pay, as described above.
Mr. Martinez's 1998 target bonus was based on a pre-approved target level of
improvement in the Company's earnings-per-share over the prior year, as
described above under "Annual Bonus." The Company's actual earnings-per-share
were below target level. Accordingly, Mr. Martinez's 1998 annual bonus of
$980,088 was also below target level.
In 1998, the Company granted Mr. Martinez an option to purchase 137,515 common
shares at a grant price of $47.10, a grant targeted at the median level.
CONCLUSION
The Compensation Committee believes that Sears executive compensation programs
align the interests of the Company's executive officers with those of the
shareholders and support the transformation efforts that are underway to make
Sears a "Compelling Place to Shop, Work and Invest."
COMPENSATION COMMITTEE:
CLARENCE B. ROGERS, JR. (CHAIRMAN)
BRENDA C. BARNES
ALSTON D. CORRELL, JR.
MICHAEL A. MILES
PATRICK G. RYAN
DOROTHY A. TERRELL
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------
During 1998, the following directors (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: Brenda C. Barnes, Alston D. Correll, Jr., Michael A.
Miles, Clarence B. Rogers, Jr., Donald H. Rumsfeld (who retired in May 1998),
Patrick G. Ryan and Dorothy A. Terrell. There were no interlocks with other
companies within the meaning of the Securities and Exchange Commission's proxy
rules during 1998.
22
<PAGE> 26
PERFORMANCE GRAPH
- --------------------------------------------------------------------------------
The following graph compares the performance of Sears common shares with that of
the S&P 500 Index, the S&P Retail Stores Composite Index and the S&P Retail
Department Stores Index.
The S&P Retail Stores Composite Index consists of all companies included in the
S&P 500 Index in the broadly defined retail sector, which includes competing
retailers of softlines (apparel and domestics) and hardlines (appliances,
electronics and home improvement products), as well as food and drug retailers.
The S&P Retail Department Stores Index consists primarily of department stores
that compete with the Company's full-line stores. The Company has added the S&P
Retail Department Stores Index because:
- - The financial community compares the Company's financial performance to
the performance of the companies represented in the Department Stores
Index;
- - The Company's full-line stores and the companies represented in the
Department Stores Index offer competing softlines merchandise and are
frequently co-tenants in shopping malls; and
- - Approximately 56% of the Company's revenue is derived from full-line
store activity.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
DECEMBER 1993 THROUGH DECEMBER 1998
[LINE GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEARS 100.00 89.96 152.55 183.45 183.73 175.68
S&P 500 100.00 101.32 139.37 171.35 228.50 293.80
S&P RETAIL 100.00 91.35 102.38 120.63 174.50 281.53
COMPOSITE
S&P RETAIL 100.00 90.14 103.88 117.17 147.32 150.40
DEPT. STORES
</TABLE>
Assumes $100 invested on the last day of December 1993. 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-off of The Allstate Corporation (June 30, 1995) as
though it were a cash distribution and the cash were reinvested in common shares
of the Company.
23
<PAGE> 27
ITEM 2: APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
Item 2 is the ratification of the Audit Committee's recommendation that Deloitte
& Touche LLP be appointed auditors for 1999. Representatives of Deloitte &
Touche LLP will be present at the meeting. They will be available to respond to
your questions and may make a statement if they desire.
THE BOARD RECOMMENDS THAT YOU VOTE to ratify THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS AUDITORS FOR 1999 AS PROPOSED IN ITEM 2.
ITEM 3: SHAREHOLDER PROPOSAL REGARDING THE CLASSIFIED BOARD
- --------------------------------------------------------------------------------
Item 3 is a proposal submitted by Martin Glotzer, 7061 N. Kedzie Avenue, Suite
301, Chicago, IL 60645, and the New England Mfg. Corp. Employees' Profit Sharing
Plan and Trust, P.O. Box 278, Brookline, MA 02446-0002. Mr. Glotzer has
indicated to the Company that as of November 4, 1998 he owned 10 common shares.
Frank Gopen, the Plan Administrator for the New England Mfg. Corp. Employees'
Profit Sharing Plan and Trust, has indicated to the Company that as of February
24, 1999 the Employees' Plan and Trust owned 110 common shares.
SHAREHOLDER PROPOSAL
Resolved: That the stockholders of Sears, Roebuck and Co., 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 48.5%*, 12,617* owners of 144,953,258* shares, were cast in
favor of this proposal. The vote against included 38,095,765* 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.
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 Company's
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 approximately one-third of the Board
is up for election. The shareholder-approved amendment provided that the
classified Board provisions of the Certificate can only be modified with the
vote of at least 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 --deci-
24
<PAGE> 28
sions 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. The Board believes that incumbent
directors who continue in office will be aware of and influenced by such
shareholder activities.
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, such an amendment to the
Certificate must first be approved by the Board and then submitted to the
Company's shareholders. As noted above, any amendment to change the current
classified Board structure must 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 of the 75% of the outstanding shares that would be required to amend the
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 THAT YOU VOTE
AGAINST ITEM 3.
ITEM 4: SHAREHOLDER PROPOSAL REGARDING VENDOR STANDARDS
- --------------------------------------------------------------------------------
Item 4 is a proposal submitted by Christian Brothers Investment Services, Inc.,
as the lead proponent, and Aaron Merle Epstein, American Friends Service
Committee, Citizens Fund, Congregation of the Mission, Congregation of the
Passion, Congregation of the Sisters of Charity of the Incarnate Word, Domini
Social Investments LLC, Franciscan Friars - St. Benedict the Moor Friary,
Sisters of Saint Dominic and The Sisters of Saint Francis of Philadelphia, as
co-filers. The Company will provide to any shareholder the addresses of the
proponents and the number of common shares held by the proponents promptly upon
request.
SHAREHOLDER PROPOSAL
Whereas: The public is concerned about the conditions under which the goods they
purchase and the clothing they wear are produced. More companies are contracting
with independent producers for goods and services outside the United States. A
Marymount University survey conducted in 1996, indicates 79% of respondents
stated they would avoid shopping in stores if they were aware that stores sold
goods made under sweatshop conditions. Eighty-three percent said they would be
willing to pay a dollar more for a $20 garment not made in sweatshops.
As U.S. companies import more goods, concern is growing about working conditions
in many nations that fall far below basic standards of fair and humane
treatment. Our company purchases goods produced in countries like China and
Indonesia where human rights abuses and unfair labor practices have occurred.
Our company should take actions to ensure it does not and will not do business
with foreign suppliers who manufacture items for sale in the United States using
forced labor, convict labor, or illegal child labor, or who fail to satisfy all
applicable standards and laws protecting their employees' wages, benefits,
working conditions freedom of association and other rights.
We believe our company should support the right of workers to organize and
bargain collectively. The company should make sure to translate its policies
into the languages of employees where the company has contracts. Our company
should demonstrate enforcement of its code by developing independent monitoring
programs with local respected religious and human rights groups to ensure
compliance with its vendor standards and assure consumers that products are not
made under abusive labor conditions. Reports that overseas suppliers are
exploiting workers may damage our company's reputation and generate a consumer
backlash.
In an effort to improve the quality of life of workers who make its products,
our company should implement ongoing wage adjustments,
25
<PAGE> 29
ensuring that workers have adequate purchasing power and a sustainable living
wage. Wage adjustments would add little to overall production costs. In
addition, our company needs to establish incentives to encourage its suppliers
and vendors to raise labor standards rather than terminate contracts.
Resolved: Shareholders request the Board of Directors to prepare a report at
reasonable expense on its Vendor Standards and compliance mechanisms for its
vendors, subcontractors and buying agents in the countries where it sources. A
summary of the results should be reported to shareholders by September, 1999.
SHAREHOLDERS' SUPPORTING STATEMENT
To be effective, company codes must be carefully monitored. The Gap Inc. has
participated in an independent monitoring process in El Salvador with respected
religious and human rights institutions for the past three years. Other
companies like Liz Claiborne, Mattel and Nike have announced plans to develop
independent monitoring programs in conjunction with local non-governmental
organizations. Through the use of independent monitoring there can be greater
assurance that the company's code of vendor standards are applied, protecting
the company from negative publicity associated with the discovery of sweatshop
practices.
THE COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that shareholders vote "against" this
proposal.
Sears has for many years been fully committed to conducting its business with a
high standard of business ethics and in compliance with all applicable laws.
Sears expects its vendors to do the same. Moreover, Sears conducts its business
with a regard for human rights and seeks vendors that have similar standards.
Consistent with these values, the Company developed a Buying Policy several
years ago that sets forth requirements that Sears vendors -- domestic and
foreign -- must satisfy as a condition of doing business with Sears.
Sears Buying Policy prohibits the use of child labor or forced or convict labor.
It sets forth requirements regarding employee health and safety, employment
practices, wages, hours and benefits. It prohibits vendors from penalizing
employees who exercise their right to establish and join legal organizations. It
also prohibits broad categories of job discrimination.
In addition to the Buying Policy, pursuant to the Company's standard purchase
contract, vendors certify that all goods they sell to Sears are manufactured in
compliance with all applicable laws governing the vendor's working conditions,
wages, hours and minimum age of the vendor's work force, and vendors further
represent and warrant that their goods have not been produced by forced or
involuntary labor. Vendors also agree to respond to Sears requests for
information regarding the location and method of manufacture. The purchase
contract prohibits vendors from changing the location of manufacture without
first informing Sears and authorizes Sears to inspect any production facilities
at which any Sears merchandise, or any components or piece goods, are being
produced. This includes the vendor's own facilities as well as those of
subcontractors and suppliers.
Sears has retained an independent, contractor-compliance auditing firm to review
the working conditions and employment practices of a selected number of domestic
apparel vendors each year. Sears personnel review the facilities used by
prospective overseas vendors to authorize the supplier relationship with Sears
and periodically review general working conditions in a selected number of
existing overseas facilities. When these reviews reveal problems, Sears will
generally work with the vendor to have the problems corrected, but reserves the
right to terminate the supplier relationship.
Sears also learns of alleged violations from external sources, including
customers, media reports and concerned citizens. In addition, Sears reviews the
Department of Labor's quarterly Garment Enforcement Report, which lists domestic
manufacturers who have been cited for wage and hour violations. Sears
investigates such alleged violations and wage and hour citations with its
vendors and such other parties as are appropriate. If the Company determines
that the alleged violations have merit, Sears will work with the vendor to
address the problem or terminate the vendor. Similarly, the Company will
follow-up with vendors to verify that the wage and hour citations have been
satisfactorily resolved.
The Company is committed to working with vendors that have strong business
ethics and regard for human rights. The Board of
26
<PAGE> 30
Directors believes the Company's practices and policies, including the Buying
Policy and the standard purchase agreement, support that commitment. The Company
has previously provided information about its practices and policies to
shareholders upon their request, and the Company will continue to do so. The
Board believes that by providing such information to shareholders and describing
the Company's practices and policies in this statement in opposition, the
Company has addressed the request for a report on the Company's Buying Policy
included in this proposal and that no additional report is necessary.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS that you VOTE
AGAINST ITEM 4.
ITEM 5: SHAREHOLDER PROPOSAL REGARDING THE CERES PRINCIPLES
- --------------------------------------------------------------------------------
Item 5 is a proposal submitted by The General Board of Pension and Health
Benefits of the United Methodist Church, 1201 Davis Street, Evanston, IL,
60201-4118. The proponent has indicated to the Company that as of October 5,
1998 it owned 70,534 common shares.
SHAREHOLDER PROPOSAL
Whereas: All leaders of industry in the United States now acknowledge their
obligation to pursue superior environmental performance and to disclose
information about that performance to their investors and other stakeholders.
The integrity, utility and comparability of environmental disclosure depends on
the creation of environmental reports that employ a common format, use credible
metrics, and follow a set of a generally accepted environmental disclosure
standards.
The Coalition for Environmentally Responsible Economies (CERES), a ten year old
partnership among some of the largest investors, environmental groups, and
corporations in the country, has established what we believe is the most
thorough and well-respected environmental disclosure form in the United States.
CERES has also gathered leading international organizations, including the
United Nations Environment Programme, into a collaborative Global Reporting
Initiative to guide and accelerate the worldwide trend toward standardized
environmental reporting.
The CERES Principles and the CERES Report have already been adopted by leading
firms in highly diverse industries such as Bank America, Baxter International,
Bethlehem Steel, Coca-Cola, General Motors, Interface, ITT Industries,
Pennsylvania Power and Light, Polaroid, and Sun Company.
We believe endorsing the CERES Principles commits a company to the prudent
oversight of its financial and physical resources through: 1) protection of the
biosphere; 2) sustainable use of natural resources; 3) waste reduction; 4)
energy conservation; 5) risk reduction; 6) safe products/services; 7)
environmental restoration; 8) informing the public; 9) management commitment;
10) audits and reports. (The full text of the CERES Principles and accompanying
CERES Report form are obtainable from CERES, 11 Arlington Street, Boston
Massachusetts 02116, (617) 247-0700 or at www.ceres.org).
Resolved: Shareholders request that the company endorse the CERES Principles as
a reasonable and beneficial component of their corporate commitment to be
publicly accountable for environmental performance.
SHAREHOLDER'S SUPPORTING STATEMENT
Recent studies show that the integration of environmental commitment into
business operations provide competitive advantage and improve long-term
financial performance for companies. In addition, the depth of a firm's
environmental commitment and the quality with which it manages its environmental
performance provide us with indicators of the foresight of its management.
Given investors' needs for credible information about a firm's environmental
performance, and given the large number of companies that have already endorsed
the CERES Principles and adopted its report format, endorsement of the CERES
Principles is a reasonable, widely accepted step for any company wishing to
demonstrate its seriousness about superior environmental performance.
The goal of the CERES Principles is continuous improvement in corporate
environmental per-
27
<PAGE> 31
formance, coupled with public accountability. One cannot measure improvement
without having data over time. Standardizing that data enables investors to
assess environmental progress within and across industries. By endorsing the
CERES Principles, a company agrees to a single consistent standard for
environmental reporting. An endorsing company works with CERES and other
endorsing companies in setting that reporting standard.
Your vote FOR this resolution serves the best interests of our Company and its
shareholders.
THE COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that shareholders vote "against" this
proposal.
Long before the CERES Principles were written, the Company had been committed to
their fundamental objectives. The Company has always been, and continues to be,
committed to operating its business and providing products and services in a
manner protective of human health and the environment. For over 50 years, the
Company has been actively involved in efforts to protect the environment. Over
the years, these efforts have included recycling used car batteries on a
national basis; recycling and reusing waste materials and store articles such as
plastic hangers and florescent light bulbs; improving energy efficiency in the
Company's stores; creating an environmental guide book; hiring a major
environmental consulting firm to review existing environmental policies and
practices; and adopting a corporate-wide Environmental Policy Statement that
applies to all of the Company's business operations.
Over the past two years, in an effort to strengthen its environmental policies
and procedures, the Company has carefully reviewed the CERES Principles. It has
met and exchanged information with CERES representatives. While the Company
agrees with the fundamental objectives of the CERES Principles, it has concluded
that it should not formally endorse them.
The CERES Principles are not appropriate for a non-manufacturing retail
corporation whose stores are located primarily in shopping malls and local
neighborhoods. For example, the CERES Principles require a company to "make
every effort to use environmentally safe and sustainable energy sources." While
the Company supports the objective of this particular principle, retail stores
are generally limited to whatever energy sources are available in a particular
community. Furthermore, many of the CERES Principles are vague. For example, how
does a retail store "protect open spaces and wilderness, while preserving
biodiversity"? The Company is not prepared to adopt any policy it does not fully
understand or that it believes is not applicable to it. The Company does not
believe that adopting the CERES Principles would improve its ability to address
its environmental responsibilities. It would merely add new administrative, data
gathering and reporting requirements which would be costly in terms of both time
and money. These additional functions would add expenses and divert resources
better employed for creating and maintaining more effective environmental
practices.
For these reasons, the Board believes that it would not be in the best interest
of the Company to endorse the CERES Principles.
ACCORDINGLY, THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU VOTE
AGAINST ITEM 5.
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<PAGE> 32
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
As described on page 11, State Street Bank and Trust Company ("State Street")
beneficially owns 8.6% of Sears outstanding common shares. State Street provides
credit lines to the Company, provides investment management services to the
Sears Pension Plan and serves as the trustee under The Sears 401(k) Profit
Sharing Plan Trust Agreement. In addition, State Street administers and provides
investment management services to the Sears 401(k) Profit Sharing Plan. In 1998,
the Company, the Sears Pension Plan and the Profit Sharing Trust together paid
State Street approximately $9.2 million for these and related services.
Wellspring Resources, LLC, which is owned by State Street, administers the Sears
Pension Plan. Wellspring also performs administrative services for the Profit
Sharing Plan. In 1998, the Profit Sharing Trust and the Sears Pension Plan
together paid Wellspring approximately $3.2 million for administrative services
and for conversion and implementation services in connection with outsourcing
the administration of the Sears Pension Plan to Wellspring.
OTHER MATTERS
- --------------------------------------------------------------------------------
In accordance with the indemnification provisions of the Company's By-Laws and
applicable law, in 1998 the Company advanced approximately $261,500 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 the Company has advanced funds 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.
Effective March 31, 1998, the Company renewed directors and officers liability
insurance policies in the aggregate amount of $150 million. The 1998 premiums
were approximately $1.67 million. The policies expire on March 31, 2001. The
insurers are A.C.E. Insurance Co., Lloyds of London, Gulf Insurance Co.,
Reliance National Insurance Co., Great American Insurance Co., Executive Re
Indemnity Co., Zurich-American Insurance Co., Federal Insurance Co. and National
Union Fire Insurance Co. In 1998, the insurers paid total claims of
approximately $8.25 million in connection with the various lawsuits concerning
the Company's past handling of individual debtor bankruptcy reaffirmation
agreements.
29
<PAGE> 33
APPENDIX A
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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 45 days nor more than 75 days prior to the first anniversary of the
date on which the Company first mailed its proxy materials for 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 the anniversary date of the preceding year's annual meeting, 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
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<PAGE> 34
directors and only such business shall be conducted at an annual meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. The chairman of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made in accordance with the procedures set
forth in this By-Law and, if any proposed nomination or business is not in
compliance with this By-Law, to declare that such defective proposal shall be
disregarded.
For purposes of this By-Law, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a shareholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (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> 35
SEARS, ROEBUCK AND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SEARS, ROEBUCK AND CO.
The undersigned, revoking any proxy previously given, hereby
P appoint(s) Arthur C. Martinez, Hall Adams, Jr., Warren L. Batts, Richard C.
Notebaert, Hugh B. Price, Clarence B. Rogers, Jr. and Patrick G. Ryan, and
R each of them, as proxies with full powers of substitution, to vote, as
directed on the reverse side of this card, all shares the undersigned is
O entitled to vote at the 1999 Annual Meeting of Shareholders of Sears,
Roebuck and Co. and authorizes each proxy to vote at his discretion on any
X other matter that may properly come before the meeting or at any
adjournment of the meeting. This card also provides voting instructions for
Y any Sears common shares held on the undersigned's behalf in the Sears
401(k) Profit Sharing Plan.
The nominees for election to the Board of Directors are:
01. Brenda C. Barnes
02. Michael A. Miles
03. Dorothy A. Terrell
Instruction: To maximize the number of nominees elected to Sears,
Roebuck and Co.'s Board of Directors, unless otherwise specified below this
proxy authorizes the proxies named above to cumulate all votes that 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 the proxies
shall determine, in their sole and absolute discretion. 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.
Please note that you can direct the proxies to cumulate your votes only if
you vote by mail.
________________________________________________________________________________
________________________________________________________________________________
SEE REVERSE SIDE
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FOLD AND DETACH HERE
<PAGE> 36
[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 properly 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 proposals 3, 4 and
5, except for any shares the undersigned holds in the Sears 401(k) Profit
Sharing Plan, which will be voted according to Plan rules.
The Board of Directors recommends a vote FOR proposals 1 and 2.
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1. Election of Directors FOR WITHHELD
(see reverse) [ ] [ ]
For, except vote withheld from the following nominee(s):
- ----------------------------------------
2. Appointment of Deloitte FOR AGAINST ABSTAIN
& Touche LLP as [ ] [ ] [ ]
Independent auditors
for the year 1999.
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The Board of Directors recommends a vote AGAINST proposals 3, 4 and 5.
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3. Shareholders proposal FOR AGAINST ABSTAIN
regarding the classified [ ] [ ] [ ]
Board.
4. Shareholder proposal
regarding vendor [ ] [ ] [ ]
standards.
5. Shareholder proposal
regarding the CERES [ ] [ ] [ ]
Principles.
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SPECIAL ACTIONS
I will attend I have given written voting instructions,
the Annual Meeting. [ ] a change of address or comments on the
back of this card. [ ]
Do not mail me future Annual Reports.
Another household member receives one. [ ]
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SIGNATURE(S) DATE
---------------------------------------- ---------------
NOTE: Please sign exactly as your name or names appear hereon. Joint
owners should each sign. When signing as attorney, executor,
administrator, trustee, guardian or corporate officer, give
full title.
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FOLD AND DETACH HERE
SEARS
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all common shares of Sears, Roebuck and Co. that you
are entitled to vote and gives voting instructions for any common shares held on
your behalf in the Sears 401(k) Profit Sharing Plan.
Please consider the issues discussed in the proxy statement and cast your vote
by:
[Computer Graphic] * Accessing the World Wide Web site
http://www.sears.com/vote to vote via the Internet. YOU
CAN ALSO REGISTER AT THIS SITE TO ACCESS FUTURE PROXY
MATERIALS ELECTRONICALLY.
[Telephone Graphic] * Using a touch-tone telephone to vote by phone toll free
from the U.S. or Canada. Simply dial 1-877-779-8683 and
follow the instructions. When you are finished voting,
your vote will be confirmed and the call will end.
[Envelope Graphic] * Completing, dating, signing and mailing the proxy card in
the postage-paid envelope included with the proxy
statement or sending it to Sears, Roebuck and Co., c/o
First Chicago Trust Company of New York, P.O. Box 8648,
Edison, New Jersey 08918-9147.
You can vote by phone or via the Internet anytime prior to May 13, 1999. You
will need the control number printed at the top of this instruction card to vote
by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.
