<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)
SEARS, ROEBUCK AND CO.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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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 17, 2000
ARTHUR C. MARTINEZ
Chairman of the Board
Dear Shareholder:
I am pleased to invite you to attend the Company's 2000 Annual Meeting of
Shareholders on Thursday, May 11, 2000. The meeting will begin at 10:00 a.m. in
the Merchandise Review Center, Sears Store Support, 3333 Beverly Road, Hoffman
Estates, Illinois. For your convenience, we are again broadcasting the meeting
live over the internet at www.sears.com.
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 1999 Annual Report are also enclosed.
Whether or not you plan to attend in person, please read the proxy statement
and vote your shares. Again this year we are including instructions, attached to
your proxy card, for internet and telephone voting. If you prefer, you can
always 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 17, 2000
ANASTASIA D. KELLY
Executive Vice President,
General Counsel
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- --------------------------------------------------------------------------------
Sears, Roebuck and Co. will hold its 2000 Annual Meeting of Shareholders in
the Merchandise Review Center, Sears Store Support, 3333 Beverly Road, Hoffman
Estates, Illinois, on Thursday, May 11, 2000. The meeting will begin at 10:00
a.m. At the meeting, we will:
- Elect four directors for terms expiring at the 2003 Annual Meeting of
Shareholders;
- Ratify the recommendation of the Audit Committee that Deloitte & Touche
LLP be appointed auditors of the Company for 2000;
- Vote on the proposed Sears, Roebuck and Co. 2000 Employees Stock Plan;
- Vote on the shareholder proposal set out in the proxy statement
concerning the classified board, if it is 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
Executive Vice President, General
Counsel
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 2000 Annual Meeting of Shareholders. The mailing commenced on
or about March 23, 2000.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Questions and Answers....................................... 2
Item 1: Election of Directors............................... 4
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: Proposal to Approve Sears, Roebuck and Co. 2000
Employees Stock Plan...................................... 24
Item 4: Shareholder Proposal Regarding the Classified
Board..................................................... 27
Vendor Standards............................................ 28
Certain Transactions........................................ 29
Other Matters............................................... 29
Appendix A.................................................. A-1
Appendix B.................................................. B-1
</TABLE>
<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 13, 2000. There were 355,169,996 common shares outstanding on
March 13, 2000.
Q: WHAT AM I VOTING ON?
A: You are voting on:
- The election of four nominees as directors for terms that expire in 2003.
The Board of Directors' nominees are Hall Adams, Jr., James R. Cantalupo,
W. James Farrell and Richard C. Notebaert.
- The ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2000.
- The approval of the Sears, Roebuck and Co. 2000 Employees Stock Plan.
- The shareholder proposal described beginning on page 27 concerning the
classified board, if properly introduced at the meeting.
The four 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 complete and submit a proxy 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, for the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors for 2000, and for the approval of the Sears, Roebuck and Co. 2000
Employees Stock Plan. The Board recommends you vote against the shareholder
proposal concerning the classified board.
Q: CAN I REVOKE MY PROXY CARD?
A: Yes, 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, a division of Equiserve ("First
Chicago"), an independent tabulator, will count the vote. Representatives of
Seaway National Bank, an independent bank, will act as the inspectors of
election.
2
<PAGE> 6
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
- 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 and number of
shares voted. However, First Chicago will not disclose how the shares were
voted (except insofar as you have described your vote in 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. A "broker non-vote" occurs when
a nominee (such as a bank or broker) does not have discretionary voting
authority for shares held on behalf of a beneficial owner and does not
receive voting instructions from the beneficial owner by ten days before the
meeting.
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) Savings Plan.
Q: HOW ARE SEARS COMMON SHARES IN THE SEARS 401(K) SAVINGS PLAN VOTED?
A: If you hold Sears common shares through the Sears 401(k) Savings 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 401(k) Plan participants vote their shares.
401(k) 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, selecting option # 2, and then pressing "0" to speak to a
representative.
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 400 votes for the election of
directors (100 shares x 4 directors to be elected = 400 votes). You could
distribute those votes equally among the four 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
3
<PAGE> 7
entitled to cast and to allocate those votes among the nominees for
director. If you wish to specify your cumulative vote and you are a
shareholder of record, you must mail in your proxy card. If you wish to
specify your cumulative vote and your shares are held in street name, you
must follow the voting instructions you receive from your broker.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2001 ANNUAL MEETING OF
SHAREHOLDERS?
A: If you want to present a proposal from the floor at the 2001 annual meeting,
you must give the Company written notice of your proposal no earlier than
January 7, 2001 and no later than February 6, 2001. Your notice should be
sent to Secretary, Sears, 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 you want your proposal to be considered for inclusion in next year's
proxy statement, you must submit the proposal in writing to the Secretary
so it is received at the above address by November 17, 2000.
Q: HOW IS THIS PROXY SOLICITATION BEING CONDUCTED?
A: Sears has retained 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 2000 Annual Report and
the Proxy Statement for the 2001 annual meeting.
ITEM 1: ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
Item 1 is the election of four 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 terms of Hall Adams, Jr. and Richard C. Notebaert expire at the 2000 annual
meeting. They have each been nominated to serve another term in Class C expiring
in 2003. In addition, W. James Farrell, who was elected by the Board to serve as
a director on August 11, 1999, and James R. Cantalupo have been nominated to
serve in Class C for terms expiring in 2003. Alston D. Correll, Jr. and Patrick
G. Ryan, Class C directors whose terms expire at the 2000 annual meeting, are
not standing for reelection. Clarence B. Rogers, Jr., formerly a Class A
director, retired on October 24, 1999.
The directors in Class A are serving terms that expire in 2001, and the
directors in Class B are serving terms that expire in 2002.
Information as to each Class C nominee and as to directors continuing in Classes
A and B follows.
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE FOUR NOMINEES.
4
<PAGE> 8
NOMINEES FOR DIRECTOR
CLASS C: TERM EXPIRING AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
HALL ADAMS, JR.
[PHOTO] Chairman of the Board and Chief Executive Officer of Leo
Burnett Company, Inc. (advertising agency) from January 1987
until his retirement on January 1, 1992. Mr. Adams is also a
director of The Dun & Bradstreet Corporation and McDonald's
Corporation and a Trustee of Rush-Presbyterian-St. Luke's
Medical Center.
Director since 1993. Age 66.
JAMES R. CANTALUPO
[PHOTO] Vice Chairman and President of McDonald's Corporation
(restaurant chain) since December 1999, Vice Chairman of
McDonald's Corporation and Chairman and Chief Executive
Officer, McDonald's International, from August 1998 to
December 1999. Mr. Cantalupo served as President and Chief
Executive Officer, McDonald's International from 1991 to
1998. Mr. Cantalupo is also a director of McDonald's
Corporation and Rohm & Haas Co.
Nominee. Age 56.
W. JAMES FARRELL
[PHOTO] Chairman and Chief Executive Officer of Illinois Tool Works,
Inc. (manufacturing and marketing of engineered components)
since 1996. Mr. Farrell served as President and Chief
Executive Officer of Illinois Tool Works, Inc. in 1995, and
previously served as Executive Vice President of the
company. Since joining Illinois Tool Works, Inc. in 1965, he
has held numerous general manager and vice president
positions. Mr. Farrell is a director of The Allstate
Corporation, and The Quaker Oats Company. He is a Trustee of
Northwestern University, the Chicago Symphony Orchestra,
Rush-Presbyterian-St. Luke's Medical Center, and the Museum
of Science and Industry, where he is Chairman of the Board
of Trustees.
Director since 1999. Age 57.
RICHARD C. NOTEBAERT
[PHOTO] Chairman of the Board, President and Chief Executive Officer
of Ameritech Corporation (telephone, data and video
communications) from April 1994 until his retirement in
December 1999. 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 director of Cardinal Health
Care, a Charter Trustee of Northwestern University and a
Trustee of the University of Notre Dame and the Chicago
Symphony Orchestra.
Director since 1996. Age 52.
</TABLE>
5
<PAGE> 9
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
CLASS A: TERM EXPIRING AT THE 2001 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
WARREN L. BATTS
[PHOTO] Chairman and Chief Executive Officer of Tupperware
Corporation (consumer products) from June 1996 until his
retirement on September 30, 1997, and Chairman of Premark
International, Inc. (consumer and commercial products) from
May 1996 until his retirement on September 30, 1997. Mr.
Batts was Chairman and Chief Executive Officer of Premark
International, Inc. from September 1986 to May 1996. In
addition, Mr. Batts is a director of The Allstate
Corporation, Cooper Industries, Inc., Derby Cycle
Corporation 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 67.
ARTHUR C. MARTINEZ
[PHOTO] 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
previously served as Vice Chairman and a director of Saks
Fifth Avenue from August 1990 to August 1992. Mr. Martinez
is a director of the National Urban League, Northwestern
Memorial Hospital and PepsiCo, Inc. and is a Trustee of
Northwestern University, the Chicago Symphony Orchestra and
The Art Institute of Chicago. Mr. Martinez serves as
Chairman of The Federal Reserve Bank of Chicago.
Director since 1995. Age 60.
HUGH B. PRICE
[PHOTO] President and Chief Executive Officer of the National Urban
League (social services and welfare organization) 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, New England
Telephone & Telegraph Co. and New York Telephone Company.
Mr. Price is also a Trustee of the Committee for Economic
Development, Educational Testing Service and the Urban
Institute.
Director since 1997. Age 58.
</TABLE>
6
<PAGE> 10
CLASS B: TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS
<TABLE>
<S> <C>
BRENDA C. BARNES
[PHOTO] Interim President, Chief Operating Officer, Starwood Hotels
and Resorts from November 1999 until March, 2000. Ms. Barnes
served as President and Chief Executive Officer of PepsiCola
North America (beverages) from April 1996 until her
retirement in 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. since 1976. She is a director of Avon Products, Inc.,
Lucas Digital LTD and Lucas Arts Entertainment Company LLC,
and The New York Times Company.
Director since 1997. Age 46.
MICHAEL A. MILES
[PHOTO] 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., Interpublic
Group of Companies, 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 60.
DOROTHY A. TERRELL
[PHOTO] President, Services Group, and Senior Vice President,
Worldwide Sales, of Natural MicroSystems Corporation (a
telecommunications company) since February 1998. Ms. Terrell
served as President of SunExpress, Inc., an operating
company of Sun Microsystems, Inc., and as a Corporate
Executive Officer of Sun Microsystems, Inc. from August 1991
until September 1997. Ms. Terrell served as a Group Manager
in Digital Equipment Corporation from October 1987 to July
1991. She is a director of General Mills, Inc., Herman
Miller, Inc. and Massachusetts Technology Development
Corporation. She is also a director of the National Housing
Partnership Foundation and is a member of the Advisory
Council of the Stanford Graduate School of Business.
Director since 1995. Age 54.
</TABLE>
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 four committees of the Board govern Sears. During
1999, 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 94% in 1999. No
director attended fewer than 75% of the meetings of the Board and of the
committees of which the director was a member in 1999 except for Mr. Ryan, who
was out of the country on one meeting date and had a family illness on one
meeting date.
The following table identifies the 1999 membership of board committees and
states the number of committee meetings held during 1999. A summary of each
committee's responsibilities follows the table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DIRECTOR AUDIT COMPENSATION EXECUTIVE NOMINATING
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hall Adams, Jr. X X
-------------------------------------------------------------------------------------------------
Brenda C. Barnes X X*
-------------------------------------------------------------------------------------------------
Warren L. Batts X* X X
-------------------------------------------------------------------------------------------------
Alston D. Correll, Jr. X X
-------------------------------------------------------------------------------------------------
W. James Farrell X X
-------------------------------------------------------------------------------------------------
Michael A. Miles X X X*
-------------------------------------------------------------------------------------------------
Arthur C. Martinez X*
-------------------------------------------------------------------------------------------------
Richard C. Notebaert X X
-------------------------------------------------------------------------------------------------
Hugh B. Price X X
-------------------------------------------------------------------------------------------------
Patrick G. Ryan X X
-------------------------------------------------------------------------------------------------
Dorothy A. Terrell X X
-------------------------------------------------------------------------------------------------
No. of Meetings in 1999 4 5 0 3
-------------------------------------------------------------------------------------------------
* Committee Chair
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
EXECUTIVE COMMITTEE
- - Perform certain Board duties between Board meetings, if necessary. (Did not
meet in 1999.)
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, the
appointment of the Chairman for each committee of the Board, and the
procedures for shareholder voting.
8
<PAGE> 12
- - Review the Company's corporate governance guidelines.
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 2001 annual meeting no earlier than January 7, 2001 and no
later than February 6, 2001.
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
approximately $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 approximately $30,000 and vests on the first
anniversary of 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 chairs 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 13, 1999, the
Company granted each director 594 deferred shares and an option to buy 1,784
shares at an exercise price of $50.44. On August 11, 1999, upon W. James
Farrell's election to the Board, the Company granted him 448 deferred shares and
a option to buy 1,680 shares at an exercise price of $40.16, both representing a
prorated share of the annual grants.
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, NOMINEES AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SEARS COMMON SUM OF COMMON SHARES
SEARS COMMON SHARE PLUS COMMON SHARE
NAME SHARES (A) EQUIVALENTS (B) EQUIVALENTS
-------------------------- ------------ --------------- --------------------
<S> <C> <C> <C>
Hall Adams, Jr. 9,491(c) -- 9,491
-------------------------------------------------------------------------------------
Brenda C. Barnes 4,685(d) -- 4,685
-------------------------------------------------------------------------------------
Warren L. Batts 10,091(c) 28,359 38,450
-------------------------------------------------------------------------------------
James R. Cantalupo -- -- --
-------------------------------------------------------------------------------------
Alston D. Correll, Jr. 7,907(e) 2,407 10,314
-------------------------------------------------------------------------------------
W. James Farrell 294(f) -- 294
-------------------------------------------------------------------------------------
Arthur C. Martinez 1,108,776(g) -- 1,108,776
-------------------------------------------------------------------------------------
Michael A. Miles 11,762(c) 8,777 20,539
-------------------------------------------------------------------------------------
Richard C. Notebaert 7,396(h) 2,050 9,446
-------------------------------------------------------------------------------------
Hugh B. Price 4,956(i) 1,887 6,843
-------------------------------------------------------------------------------------
Patrick G. Ryan 5,938(i) 1,304 7,242
-------------------------------------------------------------------------------------
Dorothy A. Terrell 9,541(c) -- 9,541
-------------------------------------------------------------------------------------
Mark A. Cohen 55,363(j) -- 55,363
-------------------------------------------------------------------------------------
Julian C. Day 69,135(k) -- 69,135
-------------------------------------------------------------------------------------
Anastasia D. Kelly 58,333(l) -- 58,333
-------------------------------------------------------------------------------------
Alan J. Lacy 269,392(m) -- 269,392
-------------------------------------------------------------------------------------
All directors, nominees
and executive officers 2,137,405(n) 54,716 2,192,121
as a group
- ---------------------------------------------------------------------------------------------
</TABLE>
NOTES TO SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS TABLE:
(a) Ownership is as of January 31, 2000 and includes:
- Shares in which the director, nominee 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, nominee 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:
<TABLE>
<S> <C>
Brenda C. Barnes 1,000 shares
Richard C. Notebaert 100 shares
Hugh B. Price 18 shares
Patrick G. Ryan 1,000 shares
</TABLE>
(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 2,595 vested deferred shares and 5,796 shares subject to option.
(d) Includes 1,416 vested deferred shares and 2,269 shares subject to option.
10
<PAGE> 14
(e) Includes 2,145 vested deferred shares and 4,762 shares subject to option.
(f) Represents 294 vested deferred shares.
(g) Includes 1,003,056 shares subject to option and 1,215 shares credited to Mr.
Martinez's account in the Sears 401(k) Savings Plan.
(h) Includes 2,304 vested deferred shares and 4,992 shares subject to option.
(i) Includes 1,680 vested deferred shares and 3,258 shares subject to option.
(j) Includes 25,150 shares subject to option and 184 shares credited to Mr.
Cohen's account in the Sears 401(k) Savings Plan.
(k) Includes 44,135 shares subject to option.
(l) Includes 33,333 shares subject to option.
(m) Includes 187,120 shares subject to option and 603 shares credited to Mr.
Lacy's account in the Sears 401(k) Savings Plan.
(n) Includes 19,899 vested deferred shares, 1,727,581 shares subject to option
and 10,706 shares credited to executive officers' accounts in the Sears
401(k) Savings Plan.
To the knowledge of the Company, as of January 31, 2000 and excluding common
share equivalents, no director, nominee or executive officer had a beneficial
interest in more than 0.31% of Sears outstanding common shares, and all
directors, nominees and executive officers together beneficially owned an
aggregate of .58% of Sears outstanding common shares.
James R. Clifford, an executive officer of the Company, also owns 11,000 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. 31,044,229(b) 8.2%
767 Fifth Avenue
New York, New York 10153
State Street Bank and Trust Company 36,460,955(c) 9.89%
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 for ownership as of 12/31/99. 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) The number shown includes 29,895,900 shares held by State Street Bank and
Trust Company, Trustee under The Sears 401(k) Profit Sharing Trust
Agreement on behalf of participants in the 401(k) Savings Plan.
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 1999.
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 1999 (the "Named
Officers"). The Board of Directors designates executive officers.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------
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) ($)(C) (#) ($) ($)(D)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez 1999 1,200,000 2,198,550 262,851 -- 247,742 455,835 7,000
Chairman,
President 1998 1,150,000 980,088 245,987 -- 137,515 -- 7,000
& CEO 1997 1,125,000 -- 511,974 -- 500,000 771,093 6,650
Mark A. Cohen 1999 500,068 623,009 7,898 1,125,000 70,000 247,718 7,000
President,
Softlines Chief
Marketing Officer
Julian C. Day 1999 415,479 517,625 -- 1,093,750 229,814(e) -- --
Executive Vice
President and COO
Anastasia D. Kelly 1999 386,849 581,954 -- 1,028,250 125,400 84,375 --
Executive Vice
President, General
Counsel
Alan J. Lacy 1999 566,712 827,256 3,940 1,125,000(f) 40,000 174,130 7,000
President,
Services 1998 488,329 613,176 3,000 1,226,563 53,000 -- 7,000
1997 447,500 -- 1,401 1,028,346(g) 100,000 233,583 6,650
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE:
(a) The amounts in this column were all awarded under the Company's Annual
Incentive Plan, except that the amount disclosed for Ms. Kelly includes a
payment of $100,000 in April, 1999 as a sign-on bonus.
(b) Represents tax reimbursement payments and/or above-market interest on
deferred compensation. For Mr. Martinez, the figure also includes use of
corporate transportation and financial planning.
(c) 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, 1999, the Named Officers owned the restricted shares set
forth in the table below. The market value is based on the closing price of
Sears common shares on December 31, 1999, which was $30.38.
<TABLE>
<CAPTION>
Mr. Martinez Mr. Lacy Mr. Cohen Mr. Day Ms. Kelly
------------ -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Number of Shares -- 68,299 28,334 25,000 25,000
Market Value -- $2,074,924 $860,787 $759,500 $759,500
</TABLE>
On February 2, 1998, Mr. Cohen received an award of restricted stock that
vests in three equal annual installments beginning one year from the date of
grant. On March 1, 1999, Ms. Kelly received an award of restricted stock
that vests in three installments over five years, beginning two years from
the date of grant. All other restricted stock awards reported in the table
vest in three years or more from the date of grant.
(d) Unless otherwise footnoted, these amounts represent the Company's matching
contributions under the Sears 401(k) Savings Plan and under the Company's
nonqualified Management Supplemental Deferred Profit Sharing Plan.
12
<PAGE> 16
(e) A portion of these options are subject to performance-based vesting
requirements. For a description of the vesting requirements, see
"Performance-Based Restricted Shares" on page 19.
(f) Restricted shares represented by this award will be forfeited to the extent
that the performance-based vesting requirements for the restricted stock
award to Mr. Lacy in 1997 are met (described under "Performance-Based
Restricted Shares" on page 19).
(g) This award is 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.
13
<PAGE> 17
STOCK OPTIONS
The following table summarizes all stock options the Board granted to the Named
Officers during 1999. 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
OPTION GRANTS IN 1999
INDIVIDUAL GRANTS(A)
-----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES OR BASE EXPIRATION PRESENT
NAME GRANTED IN 1999 PRICE($) DATE VALUE($)(B)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arthur C. Martinez 123,871 2.18% $40.07 02/02/09 $1,920,001
123,871(c) 2.18% $44.07 03/10/09 $1,920,001
Mark A. Cohen 35,000 0.61% $40.07 02/02/09 $ 542,500
35,000(c) 0.61% $44.07 03/10/09 $ 542,500
Julian C. Day 65,000(d) 1.14% $56.13 03/12/07 $ 864,500
132,407(e) 2.33% $43.97 03/22/09 $2,052,309
32,407(c) 0.57% $43.97 03/22/09 $ 502,309
Anastasia D. Kelly 100,000 1.76% $40.85 03/01/09 $1,550,000
25,400 0.44% $44.07 03/10/09 $ 393,700
Alan J. Lacy 40,000 0.70% $40.07 02/02/09 $ 620,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO OPTION GRANTS TABLE:
(a) Except as otherwise described in footnotes (c), (d) and (e), the options in
this table have the following material terms. All options become
exercisable in three equal annual installments beginning one year from the
date of grant. 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. Upon retirement of the option holder, options will
continue to vest but the number of shares subject to the option will be
reduced proportionately to reflect the retirement date.
(b) These values were calculated using the Black-Scholes option pricing model
applied as of the grant date. Except as described in the next sentence, the
assumptions used to calculate these values were as follows: Dividend yield
-- 1.94%; expected volatility -- 28%; risk-free interest rates -- 4.84%;
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 based on the above assumptions except the
assumed exercise date was 8 years from the date of grant and the value was
adjusted to reflect the estimated probability that the performance-based
requirements will be met. The actual value realized may vary significantly
from these estimated values and will ultimately depend upon the excess of
the stock price over the exercise price on the date the option is
exercised.
(c) These options have the features described in footnote (a), except that they
vest in three equal annual installments beginning two years from the date
of grant.
(d) This option has the features described in footnote (a), except that it is
subject to the time-based vesting schedule and the performance-based
vesting conditions described under "Performance-Based Stock Options" on
page 18, has no reload feature, and has an exercise price of $56.13.
(e) This option has the features described in footnote (a), except that it does
not continue to vest after Mr. Day's retirement.
14
<PAGE> 18
THE PERFORMANCE CRITERIA IN THE LONG-TERM PERFORMANCE PLAN ARE DESIGNED TO
PROVIDE INCENTIVES TO LONG-TERM PERFORMANCE PLAN PARTICIPANTS TO MAKE SEARS A
"COMPELLING PLACE TO WORK, SHOP AND INVEST."
The following table shows options that Named Officers exercised during 1999 and
the number of shares and the value of grants outstanding as of January 1, 2000
for each Named Officer.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 1999 AND FISCAL YEAR
END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 01/01/00 AT 01/01/00(A)
SHARES ------------------------------ -----------------------------
ACQUIRED VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ON EXERCISE(#) REALIZED($) (# OF SHARES) (# OF SHARES) ($ VALUE) ($ VALUE)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arthur C. Martinez -- -- 915,928 839,419 8,315,435 --
Mark A. Cohen -- -- 6,742 83,485 -- --
Julian C. Day -- -- -- 229,814 -- --
Anastasia D. Kelly -- -- -- 125,400 -- --
Alan J. Lacy -- -- 156,121 175,334 506,514 --
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO OPTION EXERCISES TABLE:
(a) Value of unexercised, in-the-money options based on the closing market
price of a Sears common share of $30.38 as of the last trading day of the
Company's fiscal year.
LONG-TERM INCENTIVE PLAN
The performance criteria in the Company's Long-Term Incentive Plan measure
increases in associate satisfaction ("Work"), customer satisfaction ("Shop"),
and the Company's financial performance ("Invest") over a three-year performance
cycle. The Company established goals for the performance measures at the
beginning of the current performance cycle (1999-2001). The actual payout that
executives will earn under the current cycle is based on the degree to which the
Company achieves those goals.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLAN -- COVERING 1999-2001 CYCLE
(TO BE PAID IN MARCH, 2002)
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS(A)
OTHER PERIOD UNTIL -------------------------------------------
NAME MATURATION OR PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arthur C. Martinez 1/1/99 through 12/31/01 166,397 998,784 1,498,176
Mark A. Cohen 1/1/99 through 12/31/01 67,850 407,263 610,895
Julian C. Day 1/1/99 through 12/31/01 67,582 405,652 608,478
Anastasia D. Kelly 1/1/99 through 12/31/01 84,375 343,284 514,926
Alan J. Lacy 1/1/99 through 12/31/01 74,680 448,259 672,389
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE TO LONG-TERM INCENTIVE PLAN TABLE:
(a) Awards will be paid in cash. The Company sets target awards for
participants at the beginning of each performance cycle, based on "work,
shop and invest" 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.
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. Through
December 31, 1999, annual retirement benefits under the pension plans were 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").
In 1995, the Company changed the manner of computing retirement benefits for
years of service after January 1, 2000. Under the new formula, retirement
benefits are now based on the individual's cash compensation each year instead
of his or her 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.
Benefits earned through December 31, 1988 are reduced by a portion of the
participant's estimated social security benefits. All benefits earned prior to
January 1, 2000 are added to any benefits earned under the new formula.
As of December 31, 1999, 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, 17; Mark A. Cohen, 1; Julian C. Day, 1; Anastasia D. Kelly,
0; and Alan J. Lacy, 4.
- - 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. Day became eligible to participate in the pension plans immediately upon
signing his employment offer, without having to complete the normal one-year
waiting period prior to eligibility.
- - Ms. Kelly receives a 2-year-for-1-year service credit up until age 60, under
the terms of her employment offer.
The Pension Plan Table below shows annual retirement benefits that would be
payable based upon various assumptions as to annual cash compensation and years
of service. It assumes retirement on December 31, 2000 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 $71,100 $141,300 $217,200 $367,400 $522,300
$1,650,000 117,900 234,700 360,600 610,200 867,300
$2,300,000 164,800 328,000 504,100 853,000 1,212,200
$2,950,000 211,700 421,300 647,600 1,095,900 1,557,200
$3,600,000 258,600 514,600 791,000 1,338,700 1,902,200
$4,250,000 305,500 607,900 934,500 1,581,500 2,247,100
- ------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 20
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.
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 or hiring any Sears employees 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:
- - Two years of salary continuation (three years for Mr. Martinez), which
includes annual base pay and annual bonus target calculated for 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.
If the Named Officer's employment is terminated in connection with a "change in
control" of Sears, the Named Officer will receive the following benefits:
- - Prorated salary, including base pay and target bonus, as of the termination,
- - A lump sum equal to two years of annual base pay (three years for Mr.
Martinez) plus two times the annual bonus target (three times for Mr.
Martinez), determined by the year of termination, and
- - All company benefits for two years following the termination (three years for
Mr. Martinez).
A "change in control" generally occurs if:
- - Anyone becomes the beneficial owner of 20% or more of the outstanding Sears
common shares or the combined voting power of all voting securities,
- - The Board's nominees for election do not constitute a majority of the Board
following the election,
- - A fundamental corporate change occurs, such as a reorganization, merger,
consolidation, liquidation, or dissolution or a sale of substantially all of
Sears assets, unless Sears shareholders and directors maintain control of the
resulting entity.
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, 2000. See the "Option Grants in
1999" table on page 14 for detailed information.
STOCK OPTIONS
Generally, the options the Company granted to the Named Officers in 1999 vest in
three equal annual installments, beginning for some awards one year and for
other awards two years after the date of grant, and remain exercisable until the
tenth anniversary of the grant date. The vesting rule is subject to the
following exceptions:
- - Generally, a prorated portion of unvested options will continue to vest after
a Named Officer's normal retirement at age 65, his Company-approved early
retirement or his death or permanent disability. (Mr. Day received a grant
that does not continue to vest after his retirement.)
- - 100% of the options will vest upon a "change in control" of the Company (as
defined above under the heading "Officers' Agreements").
- - A performance-based grant to Mr. Day is subject to the vesting schedule
described under "Performance-Based Stock Options" on page 18.
In addition, the options include limited stock appreciation rights that become
exercisable in certain cases upon a change of control.
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.
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.
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 described below) for
unrestricted shares upon:
- - The scheduled vesting date of the grant, which varies by grant;
- - Retirement at age 65;
- - Early retirement with Company approval after age 60;
- - Death;
- - Permanent disability; or
- - A "change in control" of the Company (as defined under the heading "Officers'
Agreements").
Under a policy of the Sears Compensation Committee, a holder of restricted
shares who retires before age 60 is permitted to exchange a prorated portion of
the restricted shares for unrestricted shares.
PERFORMANCE-BASED STOCK OPTIONS
In 1997, the Company granted performance-based stock options to Mr. Martinez and
Mr. Lacy. In 1999, the Company granted performance-based stock options with the
same conditions to Mr. Day. 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 the full amount of his performance-based option.
These time-based vesting requirements are subject to some exceptions, pursuant
to which a prorated portion of the performance-based options will become
exercisable under the circumstances described below. The number of prorated
options will be calculated by multiplying the total number of shares underlying
the option for each scheduled vesting date by a fraction, the numerator of which
is 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 is
the number of months from the date of grant to the date the installment
otherwise vests.
- - A Named Officer's Prorated Options will continue to vest after normal
retirement (age 65), Company-approved early retirement, death or permanent
disability.
- - A Named Officer's Prorated Options will become exercisable after a "change in
control" (as defined above under the heading "Officers' Agreements") 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, the Company without cause terminates the Named Officer's
employment.
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 trading days (the "100% condition").
18
<PAGE> 22
The performance-based options (including any Prorated 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.
PERFORMANCE-BASED RESTRICTED SHARES
In 1997, the Company granted performance-based restricted shares to Mr. Lacy.
The performance-based restricted shares become exchangeable for unrestricted
shares as follows:
- - 50% of the restricted shares will become exchangeable for unrestricted shares
on the dates specified below if the 50% condition is satisfied.
- - 100% of the 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, the
performance-based restricted shares will become exchangeable for unrestricted
shares on March 12, 2007. In addition, a prorated portion of the restricted
shares will become exchangeable under the circumstances described below. The
number of Prorated Restricted Shares will be calculated by multiplying the total
number of performance-based restricted shares owned by Mr. Lacy 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 terminates and
the denominator of which will be the number of months required for full vesting
of his performance-based restricted shares (120 months).
- - The Prorated Restricted Shares will become exchangeable for unrestricted
shares upon normal retirement (age 65), Company-approved early retirement,
death or permanent disability.
- - The Prorated 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 restricted shares will become exchangeable if, following a change
in control, the Company without cause terminates his employment.
Notwithstanding the foregoing vesting rules, the performance-based restricted
shares and Prorated Restricted Shares will become exercisable only when and to
the extent that the 50% condition or the 100% condition has been satisfied.
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<PAGE> 23
REPORT OF THE COMPENSATION COMMITTEE
- --------------------------------------------------------------------------------
Sears 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 prior years, base salary increases were below
market to increase the portion of compensation that was at-risk. Now, at-risk
pay comprises the desired percentage of total compensation established by the
Company.
- - SHAREHOLDER ALIGNMENT
Executives' compensation should place their interests in line with those of
the Company's shareholders. The payout formulas in the Company's compensation
programs are performance-based. In prior years, the Company increased the
percentage of executive compensation paid in the form of Sears shares and
stock options, and decreased the percentage paid in cash. The objective of
this compensation strategy was 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 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.
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
20
<PAGE> 24
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 1999 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 Work, Shop and Invest."
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.
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
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<PAGE> 25
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 compensation based on established performance
goals and terms approved by shareholders, in each case as according to
requirements in the federal tax laws, is not subject to the $1 million
limitation. The Committee, as much as possible, uses and intends to continue to
use such 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 1999 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 4% increase in Mr. Martinez's base salary from
$1,150,000 to $1,200,000. This increase was at the median competitive market
level.
Mr. Martinez's 1999 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 above target level. Accordingly, Mr. Martinez's 1999 annual bonus of
$2,198,550 was also above target level.
In 1999, the Company granted Mr. Martinez an option to purchase 123,871 common
shares at a grant price of $40.07. The Company also granted Mr. Martinez an
option to purchase 123,871 common share at a grant price of $44.07.
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:
BRENDA C. BARNES (CHAIRMAN)
ALSTON D. CORRELL, JR.
W. JAMES FARRELL
MICHAEL A. MILES
PATRICK G. RYAN
DOROTHY A. TERRELL
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------
During 1999, 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., W. James
Farrell, Michael A. Miles, Clarence B. Rogers, Jr., 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 1999.
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<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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
DECEMBER 1994 THROUGH DECEMBER 1999
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEARS 100.00 175.51 211.07 211.38 202.13 147.86
-------------------------------------------------------------------------------------------------
S&P 500 100.00 137.54 169.09 225.48 289.93 350.93
-------------------------------------------------------------------------------------------------
S&P RETAIL 100.00 111.93 131.81 190.66 307.52 372.50
COMPOSITE
-------------------------------------------------------------------------------------------------
S&P RETAIL 100.00 115.24 130.36 164.42 168.43 143.19
DEPT. STORES
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on the last day of December 1994. 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.
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<PAGE> 27
ITEM 2: APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
Item 2 is the ratification of the Audit Committee's recommendation that Deloitte
& Touche LLP be appointed independent public accountants to audit the financial
statements of the Company for fiscal year 2000. 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 2000 AS PROPOSED IN ITEM 2.
ITEM 3: PROPOSAL TO APPROVE
SEARS, ROEBUCK AND CO.
2000 EMPLOYEES STOCK PLAN
- --------------------------------------------------------------------------------
Item 3 is a proposal to approve a new stock plan--the Sears, Roebuck and Co.
2000 Employee Stock Plan. Under Sears existing stock plans, only 811,031 shares
remain available for grant as of March 1, 2000. Thus, additional shares are
needed in order to continue the Company's equity-based compensation over the
next few years.
The Board of Directors believes that equity-based compensation increases the
Company's ability to attract and retain the quality talent necessary for the
Company's success, and helps to align the interests of participating employees
with the interests of other Sears shareholders.
Accordingly, the Board adopted the Plan on March 8, 2000, subject to shareholder
approval. The Board believes that the adoption of the Plan is in the best
interest of Sears and recommends that shareholders approve the Plan. The
following is a summary of the major provisions of the Plan. The full text of the
Plan is set forth in Appendix B to this proxy statement, and shareholders should
refer to the Plan for more complete and detailed information.
The Plan is intended to:
- - attract and retain management and other employees;
- - motivate participants to achieve long-range goals;
- - provide incentive compensation opportunities that are competitive with those
of other similar companies; and
- - further align participants' interests with those of our other shareholders
through Sears stock-based compensation.
If Sears shareholders approve the Plan it will be effective as of May 11, 2000.
No grants will be made after May 11, 2010.
On March 13, 2000, the reported closing price of Sears common stock for New York
Stock Exchange Composite Transactions was $27.44 per share.
NUMBER OF SHARES SUBJECT TO THE PLAN
The Plan provides for awards for fifteen million shares, plus any shares
authorized but unissued under Sears 1990 Stock Plan and 1994 Stock Option Plan.
Any shares surrendered or forfeited in connection with this or the prior plans
will again become available for grant under this Plan. For example, shares
related to awards (under this Plan and the prior plans) that expire unexercised,
are settled in cash in lieu of common stock, or are otherwise forfeited or
canceled, and shares withheld for taxes or used to pay an option exercise price,
will be available for additional awards under the Plan. As of March 1, 2000,
under the 1990 and 1994 Plans there were a total of 22,774,753 shares underlying
outstanding options that have not yet been exercised and 410,185 restricted
shares outstanding; and under the 1994 Plan there were an additional 811,031
authorized but unissued shares available for grant.
ELIGIBILITY
All employees of Sears and its subsidiaries are eligible to participate in the
Plan. Sears and its subsidiaries have approximately 326,000 employees. An award
may be granted to a prospective employee in connection with
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<PAGE> 28
hiring, but cannot become effective before the date the employee first performs
services.
TYPES OF AWARDS
The following types of awards may be granted under the Plan:
- - options to purchase shares of common stock of Sears;
- - recognition rights to receive shares;
- - rights to receive shares in lieu of benefits under other compensation
arrangements; and
- - stock appreciation rights.
Shares under the Plan may be either "restricted"--subject to time and/or
performance-based vesting--or unrestricted.
OPTIONS
The terms of option awards will vary, within limits set by the Plan. Typical
option awards will cover the following terms:
- - when the option vests;
- - whether the option vests all at once or in installments;
- - how long the option is exercisable;
- - whether the option is forfeited under certain conditions.
The Plan provides a maximum exercise date of ten years from the date of grant
for incentive stock options. No option may be exercised unless the optionee
remains employed by Sears or affiliates until at least six months after the
grant date. The exercise price of options may not be less than the fair market
value of Sears common shares on the date of the option grant. An optionee may
pay the exercise price of an option either in cash, or in Sears common shares if
the optionee has owned the shares for at least six months. In addition, the
Company may establish a "cashless exercise" procedure, under which the optionee
may sell some or all of the option shares and use the proceeds to pay the
exercise price. Finally, if the terms of the option allow, the optionee may pay
the exercise price in installments at least annually over not more than five
years, with interest at prevailing interest rates.
RECOGNITION RIGHTS
Recognition rights under the Plan are rights to receive Sears common shares.
They may be granted as a bonus, or in payment of a bonus or incentive award
otherwise payable. They may be granted subject to performance goals established
by the Compensation Committee of the Board in its discretion. Such goals may
relate to Sears or to any of its businesses, and may include any or all of the
following: share price, market share, revenue, earnings per share, return on
equity, return on assets, cash flow, return on investment, net income, net
income per share, operating earnings, operating earnings per share, economic
value added, market value added, customer satisfaction performance goals
measured by independent customer satisfaction surveys, and employee opinion
survey results measured by an independent firm. The Compensation Committee may
not adjust the performance goals for a performance cycle after they are set.
STOCK APPRECIATION RIGHTS
Stock appreciation rights may be granted in tandem with any option, recognition
right, payment right or shares, or may be freestanding. Participants may elect
to surrender stock appreciation rights or related tandem grants and receive the
fair market value, on the date of surrender, of the shares to which the
surrendered stock appreciation rights or tandem grants relate, less their fair
market value on the grant date. No stock appreciation right may be exercisable
unless the participant remains employed by Sears or its affiliates for at least
six months after the date granted. Payment to participants upon the exercise of
stock appreciation rights generally will be made in cash or in shares valued at
their fair market value on the date the stock appreciation rights are exercised.
PAYMENT RIGHTS
Payment rights under the Plan may provide for the grant of shares, options,
recognition rights or stock appreciation rights in payment of or in
consideration of the surrender of some or all of the participant's other or
additional compensation.
TAX WITHHOLDING RIGHTS
Awards under the Plan may include tax withholding rights. These rights allow an
25
<PAGE> 29
award recipient to satisfy tax withholding requirements by having shares
withheld from the award or by tendering previously acquired shares back to
Sears.
PAYMENTS TO PARTICIPANTS
Payments under the Plan may be made in the form of restricted or unrestricted
shares, cash or some other form Sears determines is of equal value. Sears may
permit or require a deferral of any award payment, and may include provisions
for the crediting of interest or dividend equivalents and converting any credits
into deferred stock equivalents. If an award is canceled or terminated, Sears
may pay the participant an amount that Sears determines to be fair and equitable
based upon the value and benefits received by Sears, the value to the
participant of the canceled or terminated grant or other factors.
PARTICIPANTS' RIGHTS
Awards under the Plan other than unrestricted shares are not transferable except
as designated by the participant by will or by laws of descent and distribution,
or as otherwise provided by Sears. Sears will establish when awards under the
Plan will vest. In general, restricted shares may not vest unless the
participant remains employed by Sears or its affiliates for at least six months
after the grant date. A holder of restricted shares or shares for which the
purchase price is being paid in installments will be entitled to voting and
dividend rights unless Sears provides otherwise, and Sears may impose additional
limitations on the rights of holders of these shares.
OTHER LIMITS ON AWARDS
No more than 15 million shares may be issued upon the exercise of incentive
stock options under the Plan, and no more than 1.5 million shares may be granted
to any participant as stock options or shares to which stock appreciation rights
relate during any five-year period. No more than one million shares may be
acquired in any year by any participant under performance-based recognition
rights.
ADMINISTRATION
The Plan will be administered by the Board of Directors or a committee of
non-employee directors. The Compensation Committee of the Board has been
appointed as the committee and is authorized to exercise all powers of Sears
under the Plan. The Compensation Committee is authorized to make any
determination and prescribe any provision and interpretation in connection with
the Plan. In addition, Sears senior officers may act with respect to awards to
the extent authorized by the Board or the Compensation Committee.
ADJUSTMENTS IN CONNECTION WITH CERTAIN EVENTS
In connection with certain distributions to shareholders, changes of control,
extraordinary corporate transactions or other events specified in the Plan,
Sears may make customary adjustments to the Plan and outstanding awards.
Awards under the Plan may provide that, if a change of control of Sears occurs
(as defined in the Plan -- see Appendix B), options granted at least six months
prior to the change of control will become immediately exercisable and for 60
days following the change of control each participant can elect to surrender any
exercisable option for an amount equal to the excess of the fair market value of
the shares on the date of surrender over the option price. Under the Plan, a
change of control generally occurs if:
- - anyone becomes the beneficial owner of 20% or more of the outstanding Sears
common shares or the combined voting power of all voting securities,
- - the Board's nominees for election do not constitute a majority of the Board
following the election,
- - a fundamental corporate change occurs, such as a reorganization, merger,
consolidation, liquidation, or dissolution or a sale of substantially all of
Sears assets, unless Sears shareholders and directors maintain control of the
resulting entity.
AMENDMENT
The Board may amend the Plan without shareholder approval to the fullest extent
permitted by New York law.
FEDERAL INCOME TAX CONSEQUENCES
The following material summarizes the principal anticipated federal income tax
26
<PAGE> 30
consequences of option grants under the Plan to participants and Sears.
CONSEQUENCES TO PARTICIPANTS
INCENTIVE STOCK OPTIONS. Holders of an incentive stock option will not recognize
income when they receive an option or when they receive shares upon exercising
an option, if the participant was an employee of Sears or a subsidiary from the
date of grant through the date three months prior to exercise. However, when the
holder disposes of the shares by sale or other taxable exchange, he or she
recognizes income. If the disposition is within two years after the grant of the
option or one year after exercise of the option, the holder realizes ordinary
income on the amount by which the fair market value on the date of exercise or
the amount by which the sum realized on the sale of the shares (whichever is
less) exceeds the option price. Any additional gain realized is capital gain. If
the disposition occurs after these holding periods the entire amount realized in
excess of the option price is treated as a capital gain.
NON-QUALIFIED OPTIONS. When an optionee exercises a non-qualified option, he or
she generally realizes ordinary income on the amount by which the fair market
value of the shares acquired exceeds their option price.
CONSEQUENCES TO SEARS AND ITS AFFILIATES. To the extent individual optionees
qualify for capital gains tax treatment, neither Sears nor its affiliates will
generally be entitled to a deduction for federal income tax purposes. In other
cases involving options, Sears or its affiliates will generally receive a
federal income tax deduction at the same time as and in the same amount as the
amount which is taxable to the employee as compensation, except Sears deduction
may be reduced or eliminated for any compensation arising from an option
exercised (or an incentive stock option disposed of in a disqualifying
disposition) by Sears chief executive officer or one of its four other highest
paid executive officers in office at the end of the year in which the income
arises if the option had not been granted by the Compensation Committee.
THE BOARD RECOMMENDS THAT YOU VOTE TO APPROVE THE SEARS, ROEBUCK AND CO. 2000
EMPLOYEES STOCK PLAN AS PROPOSED IN ITEM 3.
ITEM 4: SHAREHOLDER PROPOSAL REGARDING THE CLASSIFIED BOARD
- --------------------------------------------------------------------------------
Item 4 is a proposal submitted by Martin Glotzer, 7061 N. Kedzie Avenue, Suite
301, Chicago, IL, 60645 and Frank Gopen, the Plan Administrator of New England
Mfg. Corp. Employees' Profit Sharing Plan and Trust, P.O. Box 278, Brookline,
MA, 02146-0002. Mr. Glotzer has indicated to the Company that as of August 23,
1999 he owned 10 common shares. Mr. Gopen has indicated to the Company that as
of September 13, 1999 the New England Mfg. Corp. Employees' Profit Sharing 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 49.081%*, 10,779* owners of 136,585,219* shares, were cast
in favor of this proposal. The vote against included 47,143,361* 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 was formerly Chairman of the Board,
President and Chief Executive Officer of Ameritech Corporation. The Board of
Directors of
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<PAGE> 31
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 (the "Certificate") 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.
The Board, recognizing that a significant minority of shareholders have voted in
favor of previous shareholder proposals requesting declassification of the
Board, reviewed this issue this past October in an effort to determine whether
it would be appropriate to reconsider having a classified Board. After careful
review, the Board concluded, for the reasons outlined below, that it is still in
the best interests of the Company and its shareholders to maintain a classified
Board.
Board classification ensures that the majority of directors at any given time
will have experience in the business and affairs of the Company. The Board
believes that such a Board is best situated to maximize long-term shareholder
value. For instance, continuity on the Board is integral to developing, refining
and executing a long-term strategic plan, a process that often takes years. The
Board also believes continuity provides directors with an historical perspective
of the Company that enhances their ability to make fundamental decisions that
are best for the Company -- decisions on strategic transactions, significant
capital commitments and careful and consistent use of financial and other
resources. At the same time, the Board remains accountable to the shareholders,
who retain the power to influence the composition of the Board by proposing and
electing alternate nominees for the class of directors to be elected each year.
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 Certificate. 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 A VOTE AGAINST
THIS PROPOSAL AS SET FORTH IN ITEM 4.
VENDOR STANDARDS
- --------------------------------------------------------------------------------
The Company is committed to working with vendors that have strong business
ethics and regard for human rights. The Company will upon request provide
shareholders information about its buying practices and policies and vendor
standards.
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<PAGE> 32
CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
As described on page 11, State Street Bank and Trust Company ("State Street")
beneficially owns 9.89% 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) Savings Plan. In 1999, the
Company, the 401(k) Trust and the Sears Pension Plan Trust together paid State
Street approximately $7.5 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 401(k) Plan. In
1999, the Sears Pension Plan Trust and the 401(k) Trust together paid Wellspring
approximately $7.1 million for administrative services to the Sears Pension Plan
Trust and the 401(k) Trust.
OTHER MATTERS
- --------------------------------------------------------------------------------
Effective March 31, 1998, the Company renewed its directors and officers
liability insurance policies in the aggregate amount of $150 million. The 1999
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. No sums have been paid under any directors and officers
liability insurance policies or other indemnification obligation in 1999.
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APPENDIX A
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EXCERPTS FROM BY-LAWS OF SEARS, ROEBUCK AND CO.
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders shall be held at
such place within or without the State of New York as shall be fixed by the
Board of Directors from time to time.
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
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timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Company not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Company.
Only such persons who are nominated in accordance with the procedures set forth
in these By-Laws shall be eligible to serve as directors and only such business
shall be conducted at an annual meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
By-Law. The chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this By-Law and, if any
proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
For purposes of this By-Law, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a shareholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (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
I of these By-Laws shall be delivered to the Secretary at the principal
executive offices of the Company not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting.
Only such persons who are nominated in accordance with the procedures set forth
in these By-Laws shall be eligible to serve as directors and only such business
shall be conducted at a special meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
By-Law. The chairman of the 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.
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APPENDIX B
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SEARS, ROEBUCK AND CO. 2000 EMPLOYEES STOCK PLAN
This plan shall be designated as the "Sears, Roebuck and Co. 2000 Employees
Stock Plan" (the "Plan"). The Plan has been established by Sears, Roebuck and
Co. (the "Company") to (i) attract and retain persons eligible to participate in
the Plan; (ii) motivate participants, by means of appropriate incentives, to
achieve long-range goals, (iii) provide incentive compensation opportunities
that are competitive with those of other similar companies; and (iv) further
identify participants' interests with those of the Company's other shareholders
through compensation that is based on the Company's common stock; and thereby
promote the long-term financial interest of the Company and the Subsidiaries,
including the growth in value of the Company's equity and enhancement of
long-term shareholder return.
Pursuant to the Plan, the Company may from time to time, on or before May 11,
2010, grant to all employees of the Company or any of its subsidiaries (as
defined in 424(f) of the Internal Revenue Code) ("Subsidiaries") who meet the
definition of eligibility under this Plan, options ("Options") to purchase
common shares of the Company ("Shares"), rights ("Recognition Rights") to
receive shares, rights ("Payment Rights") to grants under the Plan in payment,
or upon surrender, of benefits under other or additional compensation
arrangements and rights ("Stock Appreciation Rights") to payments based upon the
appreciation in the value of Shares. Such Options, Recognition Rights, Payment
Rights and Stock Appreciation Rights are referred to herein as "Awards."
Shares under the Plan may be unrestricted ("Unrestricted Shares") or may be
subject to automatic cancellation upon such terms and conditions as may be
determined by the Company ("Restricted Shares"). Grants under the Plan may be
subject to such other terms and conditions, not inconsistent with the Plan, as
may be determined by the Company.
ELIGIBILITY
All management and other employees of the Company, including officers, whether
or not directors of the Company, and its Subsidiaries, shall be eligible for
this Plan. Any individuals who are under contract as independent contractors or
as employees of a leasing organization or agency, even if those individuals are
later determined (by judicial action or otherwise) to have been common law
employees are not eligible for this Plan. An Award may be granted to an employee
in connection with hiring, retention or otherwise prior to the date that the
employee first performs services for the Company or Subsidiaries provided that
such Awards shall not become effective prior to the date the employee first
performs services.
OPTIONS
Options granted under the Plan may be either Options which are intended to be
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), or any successor
provision ("Incentive Stock Options") or Options which are not intended to be
Incentive Stock Options ("Non-qualified Options"). The Company may provide for
the exercise of Options in accordance with such terms and conditions, in
installments or otherwise, and for such periods from the date of grant, as it
may in its discretion determine; provided, however, that any Incentive Stock
Option granted under the Plan shall be exercisable for a period of not more than
ten years from the date of grant. No Option or Stock Appreciation Right
(described below) under the Plan shall be exercisable unless the participant
remains in the employ of the Company or its affiliates until at least six months
after the date of its grant.
RECOGNITION RIGHTS
Recognition rights under the Plan shall relate to a specified maximum number of
Shares granted as, or in payment of, a bonus, or incentive award or pursuant to
the exchange of a bonus for restricted shares under any equity swap program, or
to provide incentives or recognize special achievements or contributions.
Special Recognition Rights ("Performance-Based Recognition Rights") may also be
granted under the Plan to eligible employees selected by the Committee either
(1) in the
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form of Unrestricted Shares ("Unrestricted Performance-Based Recognition
Rights") upon the attainment of certain performance goals or (2) in the form of
Restricted Shares ("Restricted Performance-Based Recognition Rights") that will
vest only upon the attainment of certain performance goals. For any such grant
of Performance-Based Recognition Rights, the Committee shall identify the period
of service (the "Performance Cycle") over which the performance goals relate and
shall select participants and establish the performance goals in writing at the
beginning of the Performance Cycle. Such performance goals may relate to Sears
or any of its businesses and shall include any or all of the following: share
price, market share, revenue, earnings per share, return on equity, return on
assets, cash flow, return on investment, net income, net income per share,
operating earnings, operating earnings per share, economic value added, market
value added, customer satisfaction performance goals measured by independent
customer satisfaction surveys, and employee opinion survey results measured by
an independent firm. Each objective performance goal must be based upon or
measured by criteria which would permit a third party having knowledge of the
relevant facts to determine whether the objective performance goal was satisfied
and to calculate the amount of the Unrestricted Performance-Based Recognition
Rights to be granted to a participant or the amount of Restricted
Performance-Based Recognition Rights that shall vest with respect to any
participant. The Committee shall have no discretion to adjust the goals for a
Performance Cycle once they have been set. The Committee must certify in
writing, that the goals have been met before any grants of Unrestricted
Performance-Based Recognition Rights may be made and before any Restricted
Performance-Based Recognition Rights may vest.
PAYMENT RIGHTS
Payment rights under the Plan shall provide for the grant of a specified maximum
number of Shares or for the grant of Options, Recognition Rights or Stock
Appreciation Rights in payment of all or a portion of compensation under any
bonus or incentive arrangement, or equity swap program, or other or additional
compensation arrangements of the Company or any of its Subsidiaries or in
consideration of the surrender of all or a portion of such compensation.
STOCK APPRECIATION RIGHTS
Stock Appreciation Rights (including limited Stock Appreciation Rights
exercisable in limited circumstances such as a change of control or other
extraordinary corporate transaction) may be granted in tandem with or otherwise
relate to any Option, Recognition Right, Payment Right, or Restricted or
Unrestricted Shares under the Plan ("Tandem Grants"), or may be independent of
any Tandem Grant ("Free-standing Stock Appreciation Rights"). Each Stock
Appreciation Right shall entitle the participant to elect to surrender all or a
portion of such Stock Appreciation Right (and, to the extent, if any, provided
by the Company, any Tandem Grant) and receive, from the Company or any of its
affiliates, with respect to the number of Shares as to which such surrendered
Stock Appreciation Right (or portion thereof) relates, up to an amount in
payment equal to the fair market value of such Shares on the date of surrender
less the fair market value (the "Grant Date Market Price") of such Shares on the
date of grant of the Tandem Grant or Free-standing Stock Appreciation Right, as
the case may be.
TAX WITHHOLDING RIGHTS
All distributions under the Plan are subject to withholding of all applicable
taxes, and the committee may condition the delivery of any Shares or other
benefits under the Plan on satisfaction of the applicable withholding
obligations. The Committee, in its discretion, and subject to such requirements
and limitations as the Committee may impose prior to the occurrence of such
withholding, may permit such withholding obligations be satisfied through cash
payment by the participant, through the surrender of Shares of stock which the
participant already owns, or through the surrender of Shares of stock to which
the participant is otherwise entitled under the Plan.
PURCHASE PRICE
The purchase price per Share to be specified in any Option granted under the
Plan shall not be less than the fair market value of such a Share on the date
such Option is granted. The Company may provide that such purchase price per
Share shall be paid to the Company by the participant in cash, Shares acceptable
to the Company owned by the holder of the Option for at least six months
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prior to the date of exercise of the Option, any other lawful form of
consideration therefor, or a combination thereof, in full no later than the time
of receipt of such Share or in installments (which are payable not less than
annually over a period of not more than five years from the date of purchase,
provided that the aggregate amount of principal which has been repaid at any
time shall not be less than one-fifth of such purchase price multiplied by the
number of whole years since the date of purchase, and bear interest at a rate at
least comparable to generally prevailing rates charged by lenders unaffiliated
with the Company for loans of a similar nature and maturity) upon such terms and
conditions (including the security, if any, therefor) as the Company may
determine. No purchase price shall be required to be specified in connection
with any Recognition Right granted under the Plan. Fair market value as of any
date shall be the mean between the lowest and highest reported sale prices of
stock on that date on the principal exchange or market on which the stock is
then listed or admitted to trading.
The Company may permit a participant to elect to pay the purchase price upon the
exercise of an Option by irrevocably authorizing a third party to sell Shares of
stock (or a sufficient portion of the Shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of sale proceeds to pay the
entire exercise price and any tax withholding resulting from such exercise.
PAYMENTS TO PARTICIPANTS
Payments to participants in connection with Options, Recognition Rights, Payment
Rights, Stock Appreciation Rights or other rights under the Plan may be in the
form of Restricted or Unrestricted Shares, or in the form of cash (or such other
form as may be determined by the Company equivalent in value thereto) in up to
an amount equal to the fair market value of an equal number of Unrestricted
Shares. In connection with cancellation or termination of any Restricted Share,
Option, Recognition Right, Payment Right, Stock Appreciation Right or other
right of any participant under the Plan (whether pursuant to the terms of the
Plan or any grant under the Plan, agreement between the Company and the
participant, or otherwise), the Company may provide for payment to such
participant of such amount as the Company may determine to be fair and equitable
to the participant or in the interest of the Company.
The Company may permit or require a deferral of any Award payment, subject to
such rules and procedures as it may establish, which may include provisions for
the payment or crediting of interest or dividend equivalents and may include
converting such credits into defined stock equivalents.
PARTICIPANTS' RIGHTS
Except as otherwise provided by the Company, Restricted Shares, Options,
Recognition Rights, Payment Rights, Stock Appreciation Rights and other rights
(other than Unrestricted Shares) under the Plan shall be exercisable during a
participant's lifetime only by the participant or the participant's guardian or
legal representative and may not be transferable except as designated by the
participant by will or by the laws of descent and distribution. Certificates for
Restricted Shares or for Shares for which the purchase price is being paid in
installments shall not be delivered to participants, and such Shares may be
represented by certificates deposited with, or held in book--entry form by, such
person or persons as may be determined by the Company. A holder of Restricted
Shares or of Shares for which the purchase price is being paid in installments
shall otherwise be entitled to all the rights (including voting and dividend
rights) of a holder of an equivalent number of Unrestricted Shares, except as
may otherwise be provided by the Company.
VESTING
Restricted Shares may be exchangeable for Unrestricted Shares at such time and
upon such terms and conditions as the Company may determine if the participant
remains in the employ of the Company or its Subsidiaries not less than six
months after the earliest of the issuance of such Restricted Shares, the grant
of any related Option, Recognition Right, Payment Right or Stock Appreciation
Right under the Plan or, in the case of Restricted Shares related to any Payment
Right, the grant of the compensation under the other or additional compensation
arrangement in respect of which such payment right is granted.
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NUMBER OF SHARES SUBJECT TO THE PLAN
Subject to the following provisions of this section, the maximum number of
Shares that may be delivered to participants and their beneficiaries under the
Plan shall be equal to the sum of (i) 15,000,000 Shares; and (ii) any Shares
available for future Awards under the 1990 Employees Stock Plan and the 1994
Employees Stock Plan (the "Prior Plans") as of the Effective Date; any Shares
that are represented by Awards granted under any Prior Plans and outstanding on
the Effective Date which are thereafter forfeited, expire or are canceled
without delivery of Shares and which result in the forfeiture of the Shares back
to the Company; any Shares which are used to satisfy the applicable tax
withholding obligations under an option that is outstanding on the Effective
Date; and any Shares delivered in full or partial payment of the purchase price
of an Option under the Prior Plans that is outstanding on the Effective Date. To
the extent provided by the Committee, any Award under the Plan may be settled in
cash rather than Shares. To the extent any Shares covered by an Award under the
Plan are not delivered to a participant or beneficiary because the Award is
forfeited or canceled, or the Shares of stock are not delivered because the
Award is settled in cash, or the Shares are used to satisfy the applicable tax
withholding obligation, such Shares shall not be deemed to have been delivered
for purposes of determining the maximum number of Shares of stock available for
delivery under the Plan but shall be deemed to have been delivered for purposes
of determining whether any limitations with respect to individual participants
have been exceeded. The number of Shares delivered in full or partial payment of
the purchase price specified in any Option under the Plan shall be deducted from
the number of Shares delivered to the participant pursuant to such Option for
purposes of determining the aggregate number of Unrestricted Shares acquired
pursuant to the Plan but not for purposes of determining the number of Shares
acquired by any individual participant pursuant to the Plan. No more than
3,000,000 Shares may be acquired pursuant to the grant of Recognition Rights,
not including any Shares issued pursuant to any equity swap program. In no event
shall the aggregate number of Shares issued pursuant to the exercise of
Incentive Stock Options under the Plan exceed 15,000,000. The maximum number of
Shares subject to stock options or to which Stock Appreciation Rights relate
that are granted to any participant during any five-year period during the term
of the Plan may not exceed 1,500,000 Shares. If an Option is issued in tandem
with Stock Appreciation Rights, such that the exercise of the Option or Stock
Appreciation Rights with respect to a Share cancels the tandem Stock
Appreciation Rights or Option right, respectively, with respect to such Share
the tandem Option and Stock Appreciation Rights with respect to each Share shall
be counted as covering but one Share for purposes of applying the limitations of
this paragraph. The maximum number of Shares that may be acquired in any
calendar year pursuant to the grant of any Performance-Based Recognition Rights
shall be one million shares.
ADJUSTMENTS IN CONNECTION WITH CERTAIN EVENTS
The Company may make such provision with respect to the Plan, including without
limitation adjustments in the number of Shares which may thereafter be acquired
under the Plan in the aggregate, the number of Shares that may thereafter be
subject to Options granted to any employee and to which Free-standing Stock
Appreciation Rights granted to such employee may relate in the aggregate, the
number of shares to which Performance-Based Recognition Rights granted to any
employee may relate, the number of Restricted Shares outstanding under the Plan
or the number of Restricted or Unrestricted Shares subject to Options,
Recognition Rights, (including Performance-Based Recognition Rights) Payment
Rights, Stock Appreciation Rights or other rights outstanding under the Plan, or
the purchase price or Grant Date Market Price specified in Options, Payment
Rights, Stock Appreciation Rights or other rights outstanding under the Plan, or
for the termination or continuation of Restricted Shares, Options, Recognition
Rights, Payment Rights, Stock Appreciation Rights or other rights outstanding
under the Plan, as it may determine to be appropriate and equitable, in
connection with any stock dividend, stock split or combination or other
reduction in the number of issued common Shares of the Company or in connection
with any merger, consolidation, reorganization, sale or exchange of
substantially all assets, change of control,
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spin-off or other distribution of any assets of the Company or any affiliate or
all or any portion of the interest of the Company in any affiliate to the
shareholders, or dissolution of the Company.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company (the
"Board") or, to the extent authorized by or pursuant to a resolution of the
Board, a committee of nonemployee directors of the Company (the "Committee") or
senior officers of the Company, (the "Plan Administrators"). Each Plan
Administrator shall, to the extent not inconsistent with the Plan and to the
extent so authorized by or pursuant to a resolution of the Board, have the power
to select participants to whom Options, Recognition Rights, Payment Rights,
Stock Appreciation Rights or tax withholding rights shall be granted; determine
the purchase price or Grant Date Market Price, if any, in connection therewith
or the basis for establishing such price, whether such purchase price may be
paid in installments, and the form of payment of such purchase price; determine
the number of Restricted or Unrestricted Shares to be granted or subject to
Options, Recognition Rights, Payment Rights, Stock Appreciation rights or tax
withholding rights; determine the other terms and conditions, if any, to which
any grant of Shares, Options, Recognition Rights, Payment Rights, Stock
Appreciation Rights or tax withholding rights under the Plan shall be subject
and to amend, modify or waive any term or condition of any such grant (provided,
however, that no such amendment or modification shall impair any outstanding
right of any participant without the consent of such participant, except to the
extent permitted under the terms and conditions of such grant as then in
effect); and authorize any action of or make any determination by the Company
and prescribe such provisions and interpretations in connection with the Plan as
such Plan Administrator shall deem necessary or advisable for carrying out the
purposes of the Plan.
RELATIONSHIP TO OTHER PLANS
Nothing in this Plan shall prevent the Company or any affiliate from adopting or
continuing other or additional compensation arrangements, including without
limitation plans providing for the grant of Restricted or Unrestricted Shares,
Options, Recognition Rights, Payment Rights, Stock Appreciation Rights or tax
withholding rights. Grants under the Plan may form a part of or otherwise be
related to such other or additional compensation arrangements.
CHANGE OF CONTROL
A "Change of Control" as used in any agreement relating to an Award shall mean:
(a) The acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended [the "Exchange Act']) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (i) the then outstanding common Shares of the Company (the
"Outstanding Company Common Shares") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of the exercise of a conversion
privilege); (ii) any acquisition by the Company or any of its subsidiaries;
(iii) any acquisition by an employee benefit plan (or any related trust)
sponsored or maintained by the Company or any of its subsidiaries; or (iv)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (i), (ii) and (iii) of (c) below are
satisfied; or
(b) Individuals who, as of the date hereof constitute the Board of Directors of
the Company (the "Board")(as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such
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individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(c) Approval by the shareholders of the Company of a "Business Combination,"
which shall mean a reorganization, merger or consolidation, in each case,
unless, following such reorganization, merger or consolidation, (i) more
than 60% of, respectively, the then outstanding common Shares of the
corporation resulting from such reorganization, merger or consolidation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Shares and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership, immediately prior
to such reorganization, merger or consolidation, of the Outstanding Company
Common Shares and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any of its subsidiaries, any employee
benefit plan (or related trust) sponsored or maintained by the Company, any
of its subsidiaries or such corporation resulting from such reorganization,
merger or consolidation, and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the Outstanding Company Common Shares or
Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding common shares of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete liquidation or
dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than a corporation,
with respect to which following such sale or other disposition, (A) more
than 60% of, respectively, the then outstanding common shares of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Shares and
Outstanding Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Shares and Outstanding Company Voting Securities, as the case
may be, (B) no Person (excluding the Company, any of its subsidiaries, and
any employee benefit plan (or related trust) sponsored or maintained by the
Company, any of its subsidiaries or such corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 20% or more of the Outstanding Company Common Shares
or Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 20% more of, respectively, the then
outstanding common Shares of such corporation and the combined voting power
of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors and (C) at least a majority of
the members of the board of directors of such corporation were members of
the Incumbent Board at the time of the execution of the initial agreement or
action of the
B- 6
<PAGE> 41
Board providing for such sale or other disposition of assets of the Company.
For purposes of the foregoing definition of "Change of Control," a "subsidiary"
of the Company shall mean any corporation in which the Company, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.
AMENDMENT
The Board shall, in its discretion, have the power to amend the Plan from time
to time, without shareholder approval to the fullest extent permitted under the
New York Business Corporation Law as in effect at the time of such amendment.
EFFECTIVE DATE
Subject to the approval of the shareholders of the Company at the annual meeting
of the shareholders, the Plan shall be effective as of May 11, 2000 (the
"Effective Date"); provided, however, that to the extent Awards are granted
under the Plan prior to its approval by shareholders, the Awards shall be
contingent on approval of the Plan by the shareholders of the Company at such
annual meeting.
B- 7
<PAGE> 42
Sears, Roebuck and Co.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SEARS, ROEBUCK AND CO.
P The undersigned, revoking any proxy previously given, hereby
appoint(s) Arthur C. Martinez, Julian C. Day and Alan J. Lacy, and each of
R them, as proxies with full powers of substitution, to vote, as directed on
the reverse side of this card, all shares the undersigned is entitled to
O vote at the 2000 Annual Meeting of Shareholders of Sears, Roebuck and Co.
and authorizes each proxy to vote at his discretion on any other matter
X that may properly come before the meeting or at any adjournment of the
meeting.
Y
This card also provides voting instructions for any Sears common
shares held on the undersigned's behalf in the Sears 401(k) Savings Plan.
The nominees for election to the Board of Directors are:
01. Hall Adams, Jr.
02. James R. Cantalupo
03. W. James Farrell
04. Richard C. Notebaert
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
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 43
[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 proposals 2 and 3 and AGAINST proposal 4,
except for any shares the undersigned holds in the Sears 401(k) Savings Plan,
which will be voted according to Plan rules.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
- --------------------------------------------------------------------------------
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 2000.
3. Approval of the Sears, Roebuck [ ] [ ] [ ]
and Co. 2000 Employees Stock Plan.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposal 4.
- --------------------------------------------------------------------------------
4. Shareholder proposal regarding FOR AGAINST ABSTAIN
the classified Board. [ ] [ ] [ ]
- --------------------------------------------------------------------------------
SPECIAL ACTIONS
I will attend I have given written voting
the Annual Meeting. [ ] instructions, a change of address or
comments on the back of this card. [ ]
Do not mail me future Annual Reports.
Another household member receives one. [ ]
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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) Savings 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 08818-9147.
You can vote by phone or via the Internet anytime prior to May 11, 2000. 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.
