<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Com-
mission 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
KMART CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
KMART CORPORATION
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- -------------------------------------------------------------------------------
(3) Filing party:
- -------------------------------------------------------------------------------
(4) Date filed:
- -------------------------------------------------------------------------------
<PAGE> 2
KMART CORPORATION
INTERNATIONAL HEADQUARTERS
TROY, MICHIGAN 48084
April 12, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Kmart Corporation on Tuesday, May 23, 1995. The meeting will be held at the
Hyatt Regency Dearborn, Fairlane Town Center, in Dearborn, Michigan and will
begin at 9:00 A.M., local time.
The formal notice of meeting, proxy statement and form of proxy accompany
this letter and describe in detail the matters to be acted upon at the meeting.
As a stockholder, your vote is important. We encourage you to execute and
return your proxy promptly whether or not you plan to attend so that we may have
as many shares as possible represented at the meeting. Returning your completed
proxy will not prevent you from voting in person at the meeting if you wish to
do so.
We hope that you will be able to attend the meeting and look forward to
seeing you there.
Sincerely,
Donald S. Perkins
Donald S. Perkins
Chairman of the Board
and Director
<PAGE> 3
KMART CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 1995
TO THE STOCKHOLDERS OF
KMART CORPORATION
The Annual Meeting of Stockholders of Kmart Corporation (the "Company")
will be held at the Hyatt Regency Dearborn, Fairlane Town Center, Dearborn,
Michigan on Tuesday, the 23rd day of May, 1995 at 9:00 A.M., local time, for the
following purposes:
1. To elect five Class III directors for a term expiring in 1998 as
set forth in the accompanying Proxy Statement.
2. To ratify the appointment of Price Waterhouse as independent
accountants of the Company for the 1995 fiscal year.
3-4. To act upon two stockholder proposals, if presented at the
meeting, as set forth in the accompanying Proxy Statement, which proposals
are opposed by the Board of Directors.
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record of Kmart common stock and of Series C convertible
preferred stock at the close of business on March 24, 1995 will be entitled to
notice of and to vote at the meeting.
You are cordially invited to attend the meeting in person. However, whether
you plan to attend or not, we urge you to complete, date, sign and return the
enclosed proxy promptly in the envelope provided, to which no postage need be
affixed if mailed in the United States, in order that as many shares as possible
may be represented at the meeting.
Holders of a majority of the Company's outstanding voting shares must be
present in person or by proxy for the meeting to be properly held.
If you plan on attending the Annual Meeting, please check the appropriate
box on the proxy card. Directions to the Annual Meeting are on the back cover.
By order of the Board of Directors
Nancie W. LaDuke
Vice President and Secretary
Troy, Michigan
April 12, 1995
<PAGE> 4
KMART CORPORATION
PROXY STATEMENT
------------------------------
GENERAL INFORMATION
April 12, 1995
This Proxy Statement (the "Proxy Statement") is furnished in connection
with the solicitation of proxies by the Board of Directors of Kmart Corporation
(the "Company"), a Michigan corporation, to be used at the Annual Meeting of
Stockholders to be held on Tuesday, May 23, 1995, at 9:00 A.M., local time, at
the Hyatt Regency Dearborn, Fairlane Town Center, Dearborn, Michigan, or any
adjournment thereof. This Proxy Statement and accompanying form of proxy are
first being mailed to stockholders on or about the date shown above. The address
of the principal office of the Company is 3100 West Big Beaver Road, Troy,
Michigan 48084-3163.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time by notice in writing to the Secretary of the Company prior
to the Annual Meeting, by submitting a subsequent proxy or by attending and
voting in person at the Annual Meeting prior to the close of voting. Unless the
proxy is revoked, the shares represented thereby will be voted as specified in
such proxy at the Annual Meeting or any adjournment thereof. Shares for which
proxies are marked "abstain" will be treated as shares present for purposes of
determining the presence of a quorum on all matters. Proxies relating to "street
name" shares that are voted by brokers on only some of the Proposals will
nevertheless be treated as present for purposes of determining the presence of a
quorum on all matters, but will not be entitled to vote on any Proposal as to
which the broker does not have discretionary voting power and has not received
instructions from the beneficial owner ("broker non-votes"). In tabulating the
vote on the election of directors and Proposals 2, 3 and 4, abstentions and
broker non-votes will be disregarded, which will have the effect of reducing the
total number of shares from which any required majority is calculated.
The Company has adopted a policy providing for confidential voting.
Pursuant to that policy, stockholder proxies will be tabulated by
representatives of the Company's stock transfer agent, The First National Bank
of Boston (the "Bank of Boston"), and, subject to certain limited exceptions,
how a stockholder voted will not be disclosed to the Company prior to final
tabulation of the vote at the Annual Meeting.
The voting securities of the Company consist of common stock, par value
$1.00 per share ("Common Stock"), and Series C convertible preferred stock, no
par value per share (the "Series C Preferred Stock"). At the close of business
on March 24, 1995, the record date for the Annual Meeting, there were
458,698,719 shares of Common Stock outstanding, each of which is entitled to one
vote, and 658,315 shares of Series C Preferred Stock outstanding, each of which
is entitled to one vote. The presence of the holders of a majority of the
outstanding shares of Common Stock and Series C Preferred Stock, represented in
person or by proxy and entitled to vote at the Annual Meeting, will constitute a
quorum at the Annual Meeting.
NBD Bank ("NBD") is the record holder of shares of Common Stock for
participants in the Kmart Corporation Employee Savings Plan including the Kmart
Corporation Employee Stock Ownership Plan. NBD has advised that it intends to
tender its proxy: (i) with respect to shares for which voting instructions are
received, as instructed by the participant; and (ii) with respect to shares for
which no voting instructions are received, in the same proportion as the shares
for which voting instructions are received.
The entire cost of soliciting proxies will be borne by the Company. Proxies
may be solicited by mail, telecopy, telegraph or telex, or by directors,
officers and regular employees of the Company in person or by telephone. The
Company has retained Georgeson & Company, Inc. to assist in the distribution of
proxy solicitation materials at a cost of approximately $12,000 plus handling
charges and out-of-pocket expenses. The Company will also reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding soliciting material to the beneficial
owners of the stock of the Company.
------------------------
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, no person beneficially owns 5% or more of
the outstanding shares of Common Stock.
The following table sets forth certain information concerning persons who,
to the knowledge of the Company, beneficially own 5% or more of the outstanding
Series C Preferred Stock as of March 31, 1995:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED OF CLASS
- ------------------------------------------------------ -------------- ------------------ --------
<S> <C> <C> <C>
Thomas P. Borders
411 East Washington, Series C
Ann Arbor, MI 48104................................. Preferred 265,335(a)(b) 40.3%
Louis H. Borders
435 Tasso Street - Suite 300 Series C
Palo Alto, CA 94301................................. Preferred 374,480(c) 56.9%
</TABLE>
- -------------------------
(a) Represents shares of Series C Preferred Stock held by Thomas P. Borders, as
Trustee under the Thomas P. Borders Trust Agreement. Thomas P. Borders and
Louis H. Borders, who are brothers, together beneficially own 97.2% of the
outstanding Series C Preferred Stock.
(b) Excludes 15,000 shares of Series C Preferred Stock that were transferred to
a trust of which the wife of Thomas P. Borders is Trustee.
(c) Represents shares of Series C Preferred Stock held by Mercury Investments
LLC, of which Louis H. Borders is the majority stockholder.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Articles and By-laws provide that the number of directors, as
determined from time to time by the Board, shall be not less than seven nor more
than twenty-one. The Board has fixed the number of directors at twelve. The
Articles and By-laws further provide that directors shall be divided into three
classes (Class I, Class II and Class III) serving staggered three-year terms,
with each class to be as nearly equal in number as possible.
In accordance with the recommendation of its Nominating Committee, the
Board has nominated Lawrence Perlman for election as Class I director for a term
expiring at the 1996 annual meeting, and Lilyan H. Affinito, Richard G. Cline,
Willie D. Davis and Joseph P. Flannery for election as Class III directors for a
term expiring at the 1998 annual meeting, and in each case until their
successors are elected and qualified. Ms. Affinito and Messrs. Davis and
Flannery are presently directors of the Company whose terms expire at the Annual
Meeting. Messrs. Cline and Perlman are new nominees for election as directors of
the Company at the Annual Meeting. Other directors who are remaining on the
Board will continue in office in accordance with their previous elections until
the expiration of their terms at the 1996 or 1997 Annual Meeting, as the case
may be.
It is the intention of the persons named in the enclosed form of proxy to
vote such proxies for the election of the nominees listed herein. The proposed
nominees are willing to be elected and serve, but in the event any nominee at
the time of election is unable to serve or is otherwise unavailable for
election, it is intended that votes will be cast pursuant to the accompanying
proxy for substitute nominees designated by the Board, unless the Board reduces
the number of directors to be elected.
DIRECTORS ARE ELECTED BY A PLURALITY OF VOTES CAST BY HOLDERS OF COMMON
STOCK AND SERIES C PREFERRED STOCK, VOTING TOGETHER AS ONE CLASS, WHO ARE
PRESENT IN PERSON OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE MEETING.
2
<PAGE> 6
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MR. PERLMAN AS
CLASS I DIRECTOR AND MS. AFFINITO AND MESSRS. CLINE, DAVIS AND FLANNERY AS CLASS
III DIRECTORS OF THE COMPANY.
INFORMATION ABOUT NOMINEES AND DIRECTORS
The following information is furnished for each person who is nominated for
election as a director or who is continuing as an incumbent director: name; age;
whether such person is a nominee for election ("Nominee") or an incumbent
director whose term does not expire at this Meeting ("Incumbent"); the year in
which his or her term is to expire; principal occupation and employment during
the past five years; boards of directors of other publicly owned companies on
which he or she serves; how long he or she has served as a director of the
Company; and committees of the Board of which he or she is a member.
LILYAN H. AFFINITO, 63 (Nominee -- Term to expire in 1998)
Former Vice Chairman of the Board of Maxxam Group Inc. (forest products
operations, real estate management and development and aluminum production).
Previously served as President and Chief Operations Officer of Maxxam Group,
Inc. Director of Caterpillar, Inc., Chrysler Corporation, Jostens Inc., Lillian
Vernon Corporation, New England Telephone Company and New York Telephone Company
(subsidiaries of Nynex Corporation) and Tambrands, Inc. Has served as a director
of Kmart Corporation since 1990. Member of Audit, Executive/Finance and Health
Care Committees.
JOSEPH A. CALIFANO, JR., 63 (Incumbent -- Term to expire in 1997)
Chairman and President, Center on Addiction and Substance Abuse at Columbia
University; author and health care consultant. Formerly Senior Partner, Law Firm
of Dewey Ballantine. Director of Authentic Fitness Corp., Automatic Data
Processing, Inc., Chrysler Corporation, New England Telephone Company and New
York Telephone Company (subsidiaries of Nynex Corporation), The Travelers Inc.
and Warnaco, Inc. Has served as a director of Kmart Corporation since 1990.
Member of Compensation and Incentives, Health Care and Public Issues Committees.
RICHARD G. CLINE, 60 (Nominee -- Term to expire in 1998)
Chairman and Chief Executive Officer of NICOR, Inc. (natural gas distribution
and containerized shipping). Previously served as Chairman, President and Chief
Executive Officer, NICOR, Inc. and Chairman, President and Chief Executive
Officer of Jewel Companies, Inc. Director of Federal Reserve Bank of Chicago,
NICOR, Inc., Pet Incorporated and Whitman Corporation. Is a new nominee for
election as director of Kmart Corporation at this year's Annual Meeting.
WILLIE D. DAVIS, 60 (Nominee -- Term to expire in 1998)
President of All Pro Broadcasting, Inc. (radio stations). Director of Alliance
Bank, The Dow Chemical Company, Johnson Controls, Inc., L.A. Gear, Inc., MGM
Grand, Inc., Rally's Hamburgers, Inc., Sara Lee Corporation and WICOR, Inc. Has
served as a director of Kmart Corporation since 1986. Member of Audit,
Nominating and Public Issues Committees.
ENRIQUE C. FALLA, 55 (Incumbent -- Term to expire in 1997)
Executive Vice President and Chief Financial Officer of The Dow Chemical
Company. Director of The Dow Chemical Company and Marion Merrill Dow, Inc. Has
served as a director of Kmart Corporation since 1992. Member of Audit,
Executive/Finance and Nominating Committees.
JOSEPH P. FLANNERY, 63 (Nominee -- Term to expire in 1998)
Chairman of the Board, President and Chief Executive Officer of Uniroyal
Holding, Inc. (investment management company). Previously served as Partner,
Clayton and Dubilier, Inc. (investment firm). Director
3
<PAGE> 7
of APS Holding Corp., Arvin Industries, Inc., Ingersoll Rand Company, Newmont
Gold Company, Newmont Mining Corporation and The Scotts Company. Has served as a
director of Kmart Corporation since 1985. Member of Compensation and Incentives,
Executive/Finance and Health Care Committees.
DAVID B. HARPER, 61 (Incumbent -- Term to expire in 1997)
President of David B. Harper Management Co., Inc. (management services); also
President and Chief Operating Officer of New Age Financial. Director of New Age
Financial and Student Loan Marketing Association. Has served as a director of
Kmart Corporation since 1975. Member of Audit, Executive/Finance and Public
Issues Committees.
F. JAMES MCDONALD, 72 (Incumbent -- Term to expire in 1996)
Retired President and Chief Operating Officer of General Motors Corporation. Has
served as a director of Kmart Corporation since 1987. Member of Compensation and
Incentives, Executive/Finance and Nominating Committees.
J. RICHARD MUNRO, 64 (Incumbent -- Term to expire in 1997)
Chairman of the Executive Committee of Time Warner Inc. (entertainment and
communications). Previously served as Co-Chairman of the Board and Co-Chief
Executive Officer of Time Warner Inc. and as Chairman of the Board and Chief
Executive Officer of Time Inc. (communications). Director of Genentech, Inc.,
Kellogg Company, Mobil Corporation and Time Warner Inc. Has served as a director
of Kmart Corporation since 1990. Member of Compensation and Incentives,
Nominating and Public Issues Committees.
LAWRENCE PERLMAN, 56 (Nominee -- Term to expire in 1996)
Chairman and Chief Executive Officer of Ceridian Corporation. Previously served
as President and Chief Executive Officer, Ceridian Corporation and President and
Chief Executive Officer, Control Data Corporation. Director of Bio-Vascular
Inc., Computer Network Technology Corp., Inter-Regional Financial Group, Inc.
and Seagate Technology, Inc. Is a new nominee for election as director of Kmart
Corporation at this year's Annual Meeting.
DONALD S. PERKINS, 67 (Incumbent -- Term to expire in 1996)
Chairman of the Board and Director of Kmart Corporation. Retired Chairman of the
Board of Jewel Companies, Inc. (diversified retailer). Director of American
Telephone and Telegraph Company, Aon Corporation, Cummins Engine Company, Inc.,
Illinova Corporation, Illinois Power Company, Inland Steel Industries, Inc.,
LaSalle Street Fund, Inc., Time Warner Inc. and Trustee of the Putnam Funds. Has
served as a director of Kmart Corporation since 1986. Member of Compensation and
Incentives, Executive/Finance and Nominating Committees.
GLORIA M. SHATTO, 63 (Incumbent -- Term to expire in 1996)
President of Berry College. Director of Becton Dickinson and Company, Georgia
Power Company, Texas Instruments, Inc. and The Southern Company. Has served as a
director of Kmart Corporation since 1983. Member of Audit, Nominating and Public
Issues Committees.
4
<PAGE> 8
STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the amount of Common Stock owned by the
Company's directors, including nominees for election as directors, each of the
current executive officers named under Compensation of Officers herein and all
of the directors and executive officers as a group, as of March 3, 1995.
<TABLE>
<CAPTION>
PERCENTAGE
OF
NAME SHARES COMMON STOCK
------ --------- ------------
<S> <C> <C>
Lilyan A. Affinito............................................... 6,615 *
Joseph E. Antonini............................................... 1,149,189(1) *
Joseph A. Califano, Jr. ......................................... 3,674 *
Richard G. Cline................................................. 5,000 *
Willie D. Davis.................................................. 3,113 *
Enrique C. Falla................................................. 3,045 *
Joseph P. Flannery............................................... 4,906 *
David B. Harper.................................................. 2,674 *
F. James McDonald................................................ 10,004 *
J. Richard Munro................................................. 2,923 *
Thomas F. Murasky................................................ 187,288(1) *
Donald S. Perkins................................................ 10,191(2) *
Lawrence Perlman................................................. 1,000 *
Gloria M. Shatto................................................. 3,113 *
Joseph R. Thomas................................................. 636,896(1) *
Thomas W. Watkins................................................ 201,885(1) *
Directors and executive officers as a group (41 persons)......... 3,516,425(1)(2) *
</TABLE>
- -------------------------
* Less than 1%.
(1) Includes shares of Common Stock that can be acquired by exercise of stock
options within 60 days of March 3, 1995 as follows: Mr. Antonini -- 974,200
shares; Mr. Thomas -- 558,000 shares; Mr. Murasky -- 164,000 shares; Mr.
Watkins -- 171,800 shares; and all directors and executive officers as a
group -- 1,074,482 shares.
(2) Mr. Perkins also shares voting and investment power as to 3,107,750 shares
of Common Stock, owned by one or more of the Putnam Funds of which he is a
Trustee. If such additional shares were included, executive officers and
directors as a group would be considered to beneficially own 6,624,175
shares, or 1.44%, of Common Stock, including 0.7% for Mr. Perkins. Mr.
Perkins disclaims beneficial ownership of these shares.
COMMITTEES OF THE BOARD
Following are the committees of the Board, the members of each committee as
of the date hereof, the number of meetings held by each committee during the
Company's fiscal year ended January 25, 1995, and a brief description of the
functions performed by each committee.
AUDIT COMMITTEE
Members: Lilyan H. Affinito (Chair), Willie D. Davis, Enrique C. Falla,
David B. Harper and Gloria M. Shatto. This Committee is comprised solely of
non-employee directors.
Number of Meetings: 8
Functions: Recommending to the Board the selection of independent
accountants: approving the nature and scope of services performed by the
independent accountants and reviewing the range of fees for such services;
conferring with the independent accountants and reviewing the results of their
audit; reviewing the Company's internal auditing, accounting and financial
controls; and providing assistance to the Board with respect to the corporate
and reporting practices of the Company.
COMPENSATION AND INCENTIVES COMMITTEE
Members: F. James McDonald (Chair), Joseph A. Califano, Jr., Joseph P.
Flannery, J. Richard Munro and Donald S. Perkins. This Committee is comprised
solely of non-employee directors.
5
<PAGE> 9
Number of Meetings: 10
Functions: Determining the nature and amount of compensation of all
executive officers of the Company and its specialty retail subsidiaries; and
administering the Company's Stock Option, Performance Restricted Stock, Annual
Incentive Bonus, Management Stock Purchase and Directors Stock Plans. This
Committee has retained an independent consultant which reports directly to the
Committee.
EXECUTIVE/FINANCE COMMITTEE
Members: Donald S. Perkins (Chair), Lilyan H. Affinito, Enrique C. Falla,
Joseph P. Flannery, David B. Harper, F. James McDonald and Thomas F. Murasky,
Executive Vice President and Chief Financial Officer.
Number of Meetings: 3
Functions: Exercising the power and authority of the Board as may be
necessary during the intervals between meetings of the Board, subject to such
limitations as provided by law or by resolution of the Board; reviewing
financial policies and procedures of the Company; making recommendations to the
Board on dividend policy, corporate financing, the issuance and sale of Company
securities and the investment of assets; and reviewing the management of the
Employee Pension Plan and Pension Fund and the Employee Savings Plan.
HEALTH CARE COMMITTEE
Members: Joseph A. Califano, Jr. (Chair), Lilyan H. Affinito, Joseph P.
Flannery, Frederic M. Comins, Jr., Senior Vice President, Executive and
Organization Resources and Donald L. Morford, Director, Employee Benefits.
Number of Meetings: 1
Functions: Reviewing and monitoring the Company's health care programs,
their adequacy and cost effectiveness; and making recommendations regarding the
Company's health care programs to management and the Board.
NOMINATING COMMITTEE
Members: Donald S. Perkins (Chair), Willie D. Davis, Enrique C. Falla, F.
James McDonald, J. Richard Munro and Gloria M. Shatto. This Committee is
comprised solely of non-employee directors.
Number of Meetings: 2
Functions: Recommending to the Board nominees for election as directors. In
performing this function, the Committee will consider nominees recommended by
stockholders. Such recommendation should be submitted in writing to the
Secretary of the Company and should include a description of the proposed
nominee's qualifications, other relevant biographical data and the written
consent of the proposed nominee. In addition, the By-laws of the Company
establish certain procedures concerning stockholder nominations for election of
directors. The By-laws require that notice of such nominations be delivered to
the Secretary of the Company within the following specified time limits prior to
the stockholders' meeting at which the directors are to be elected: 90 days in
advance of an annual meeting, and the tenth day following the date on which
notice of a special meeting is first given to stockholders. Each notice of
nomination is required to contain the name and address of the stockholder who
intends to make the nomination; the name, age, business address and written
consent of each nominee; and such other information as would be required to be
disclosed with respect to the nominee in a proxy solicitation.
PUBLIC ISSUES COMMITTEE
Members: Willie D. Davis (Chair), Joseph A. Califano, Jr., David B. Harper,
J. Richard Munro and Gloria M. Shatto.
6
<PAGE> 10
Number of Meetings: 2
Functions: Considering the extent to which Company policies relate to and
are in proper accord with the public interest; and making appropriate
recommendations in that regard to management and the Board.
There were 20 meetings of the Board during the fiscal year ended January
25, 1995. Each director attended at least 84% of the total number of Board and
committee meetings held while he or she served as a director or member of the
committee.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries receive
an annual retainer of $50,000, with no additional amount payable for attending
meetings. In addition to the retainer, Mr. Perkins, who was named non-executive
Chairman of the Board as of January 17, 1995, will receive an annual stipend of
$300,000. Twenty percent (and at the election of the director, up to 50%) of the
annual retainer, as well as Mr. Perkins' stipend, is paid in Common Stock in
lieu of cash pursuant to the Directors Stock Plan.
Under the Company's Deferred Compensation Plan for Non-Employee Directors
and Directors Stock Plan, a director may elect to defer all or any portion of
his or her compensation for services as a director which is payable in cash or
Common Stock. Under these Plans, deferred cash amounts earn interest at a rate
equivalent to the ten-year U.S. Treasury Note rate plus 5% and deferred shares
of Common Stock are credited with an amount equal to the dividends payable on
such shares, which are converted on a quarterly basis to additional shares.
Under the Company's Director Retirement Plan, non-employee directors who have
served on the Board (i) until they have reached the mandatory retirement age
established by the Company for such directors (currently the date of expiration
of his or her then current term of office following age 72), or (ii) at least 10
years, will upon retirement from the Board or age 65, whichever is later,
receive an annual benefit equal to the annual retainer at the time of
retirement. The benefit is payable to the director (or surviving spouse) for the
lesser of 10 years or a period equal to the director's period of service on the
Board.
Directors who are employees of the Company or its subsidiaries do not
receive the aforesaid compensation or retirement benefit.
7
<PAGE> 11
COMPENSATION OF OFFICERS
SUMMARY COMPENSATION TABLE. The following table sets forth information
regarding the compensation of (i) the Chief Executive Officer as of January 25,
1995, (ii) each of the other four most highly compensated executive officers of
the Company as of January 25, 1995 and (iii) one individual who would have been
among the four most highly compensated executive officers of the Company but for
the fact that he was not serving as an executive officer as of January 25, 1995,
for services in all capacities to the Company in fiscal years 1992, 1993 and
1994.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION SECURITIES PERFORMANCE ALL OTHER
NAME AND ----------------------------- UNDERLYING RESTRICTED SHARE COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) AWARDS ($)(1) ($)(2)
--------------------- ----- ---------- --------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. E. Antonini,..................... 1994 $923,000 $ -0- 125,000 $ -0- $ 27,540
President and 1993 893,000 -0- 125,000 -0- 23,293
Chief Executive Officer(3) 1992 850,000 604,901 20,000 663,875 57,622
G. R. Mrkonic,...................... 1994 509,000 -0- -0- -0- 22,817
Executive Vice President, 1993 490,000 270,187 -0- 204,531 22,995
Specialty Retailing(4) 1992 465,000 403,125 -0- 122,153 18,752
J. R. Thomas,....................... 1994 500,000 -0- 62,500 -0- 19,657
Executive Vice President, 1993 447,498 155,218 50,000 -0- 17,946
Special Projects 1992 410,000 236,810 8,000 279,650 27,965
R. S. Miller,....................... 1994 500,000 -0- 50,000 -0- 283,697
Executive Vice President, 1993 500,000 -0- 62,500 -0- 13,039
Super Kmart Centers(5) 1992 475,000 202,618 10,000 198,669 24,960
T. F. Murasky,...................... 1994 383,000 -0- 39,000 -0- 11,490
Executive Vice President, 1993 370,000 -0- 39,000 -0- 17,200
Chief Financial Officer 1992 350,000 201,288 6,000 161,633 14,943
T. W. Watkins,...................... 1994 350,000 -0- 29,000 -0- 12,963
Senior Vice President, 1993 335,000 82,102 29,000 -0- 13,919
International Operations 1992 315,000 93,831 4,600 83,378 11,457
</TABLE>
- -------------------------
(1) The amounts in this column represent the value of performance restricted
shares of Common Stock issued under the Company's Performance Restricted
Stock Plan (based on the market price of the stock as of the date of issue)
which were earned through the achievement of specified income goals for the
fiscal year indicated. The Company has discontinued making awards under the
Performance Restricted Stock Plan. As of January 25, 1995, the named
executive officers had no outstanding performance restricted shares.
(2) Except for Mr. Miller, "All Other Compensation" consists of employer
contributions credited under the Company's Employee Savings Plan and
Supplemental Savings Plan. The Employee Savings Plan is qualified under the
Internal Revenue Code. The Supplemental Savings Plan provides benefits to
the extent that the Employee Retirement Income Security Act limits the
amount of employer contributions to which a participant would otherwise be
entitled under the Employee Savings Plan absent such limitation. In fiscal
1994, all such employer contributions were credited under the Supplemental
Savings Plan. Mr. Miller's "Other Compensation" includes employer
contributions to the Supplemental Savings Plan plus $268,697 which was paid
to him by the Company in connection with his termination of employment as of
January 31, 1995.
(3) Mr. Antonini relinquished his positions as President, Chief Executive
Officer and Director as of March 21, 1995.
(4) Mr. Mrkonic resigned from the Company as of November 29, 1994 to become Vice
Chairman and President of Borders Group, Inc., a subsidiary of the Company.
(5) Mr. Miller resigned from the Company as of January 31, 1995.
8
<PAGE> 12
OPTION GRANTS IN FISCAL YEAR 1994. The following table shows all grants to
each of the executive officers named under Compensation of Officers herein in
fiscal 1994. (Stock Appreciation Rights are not permitted under the Company's
Stock Option Plans. Additional information on the Company's Stock Option Plans
is contained in the Compensation and Incentives Committee's Report on Executive
Compensation set forth below.)
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
OPTIONS GRANTED TO GRANT DATE
GRANTED EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME (#)(1) FISCAL 1994 PRICE ($/SH)(2) DATE VALUE ($)(3)
------ ------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
J. E. Antonini(4)............................ 125,000 3.7% $ 18.88 3/01/04 $640,000
G. R. Mrkonic(5)............................. -0- -- -- -- -0-
J. R. Thomas................................. 62,500 1.86 18.88 3/01/04 320,000
R. S. Miller(6).............................. 50,000 1.49 18.88 3/01/04 256,000
T. F. Murasky................................ 39,000 1.16 18.88 3/01/04 199,680
T. W. Watkins................................ 29,000 0.86 18.88 3/01/04 148,480
</TABLE>
- -------------------------
(1) Options of Messrs. Antonini and Miller became exercisable on their last day
of employment. Other options shown above will become exercisable on March
1, 1997.
(2) All options were granted at a price equal to 100% of the market value of the
Common Stock on the date of grant (March 1, 1994). The exercise price may
be paid in cash, already owned shares or a combination of both.
(3) This column represents the present value of the options on the date of grant
using the Black-Scholes option pricing model for the Common Stock,
utilizing the following assumptions: five-year stock price volatility of
.305; 1 year average dividend yield of 4.74%; 10 year option term; 7.11%
risk-free interest rate; and no adjustment for non-transferability or
forfeiture. The actual value, if any, that an executive officer may realize
will depend on the excess of the market price over the exercise price on
the date the option is exercised so that there is no assurance that the
value realized by an executive will be at or near the value estimated by
the Black-Scholes model, which is based on arbitrary assumptions as to the
variables of stock price volatility, future dividend yield, interest rate.
(4) Mr. Antonini relinquished his positions as President, Chief Executive
Officer and Director as of March 21, 1995.
(5) Mr. Mrkonic resigned from the Company as of November 29, 1994.
(6) Mr. Miller resigned from the Company as of January 31, 1995.
OPTION EXERCISES IN FISCAL YEAR 1994 AND OPTION VALUES AT FISCAL YEAR
END. The following table provides information as to options exercised by each of
the executive officers named under Compensation of Officers herein in fiscal
1994 and the value of options held by such executive officers at fiscal year end
measured in terms of the closing price of the Common Stock on January 25, 1995.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT OPTIONS AT
SHARES AGGREGATE ANNUALIZED 1/25/95 (#) 1/25/95 ($)(3)
ACQUIRED ON VALUE VALUE
EXERCISE REALIZED REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($)(1) ($)(2) UNEXERCISABLE UNEXERCISABLE
------ ----------- --------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C>
J. E. Antonini(4)........................ -0- $ -- $ -- 974,200/270,000 $ -0-/-0-
G. R. Mrkonic(5)......................... -0- -- -- -0-/-0- -0-/-0-
J. R. Thomas............................. -0- -- -- 558,000/120,500 239,104/-0-
R. S. Miller(6).......................... -0- -- -- 424,600/122,500 -0-/-0-
T. F. Murasky............................ 2,000 11,460 1,146 164,000/84,000 7,680/-0-
T. W. Watkins............................ -0- -- -- 171,800/62,600 -0-/-0-
</TABLE>
- -------------------------
(1) This column shows the aggregate gain realized as a result of the exercise of
stock options during the Company's 1994 fiscal year based on the market
value on the date of exercise less the exercise price of the option.
(2) This column represents the amount of the aggregate gain annualized over the
period of time which the executive held the option since the date of grant.
(3) Value is based on the excess of the market price of the Common Stock as of
the end of the Company's 1994 fiscal year ($13.50) over the option price of
the unexercised options.
(4) Mr. Antonini relinquished his positions as President, Chief Executive
Officer and Director as of March 21, 1995, and all of his options shown as
unexercisable above became exercisable on such date.
(5) Mr. Mrkonic resigned from the Company as of November 29, 1994.
(6) Mr. Miller resigned from the Company as of January 31, 1995, and all of his
options shown as unexercisable above became exercisable on such date.
9
<PAGE> 13
PENSION PLAN TABLE(1)
The following table illustrates the estimated annual benefits payable under
the combined Plans described below under the final average compensation formula
(prior to the applicable Social Security reduction) for employees at various
levels of compensation and years of service after age 21 and assumes that the
Plans will continue in their present form until the employee's retirement and
that the employee will continue in the employ of the Company or a participating
subsidiary until age 65.
<TABLE>
<CAPTION>
YEARS OF SERVICE(3)
--------------------------------------------------------------------
REMUNERATION(2) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000.................. $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000.................. 33,750 45,000 56,250 67,500 78,750
200,000.................. 45,000 60,000 75,000 90,000 105,000
250,000.................. 56,250 75,000 93,750 112,500 131,250
300,000.................. 67,500 90,000 112,500 135,000 157,500
350,000.................. 78,750 105,000 131,250 157,500 183,750
400,000.................. 90,000 120,000 150,000 180,000 210,000
450,000.................. 101,250 135,000 168,750 202,500 236,250
500,000.................. 112,500 150,000 187,500 225,000 262,500
600,000.................. 135,000 180,000 225,000 270,000 315,000
700,000.................. 157,500 210,000 262,500 315,000 367,500
800,000.................. 180,000 240,000 300,000 360,000 420,000
900,000.................. 202,500 270,000 337,500 405,000 472,500
1,000,000.................. 225,000 300,000 375,000 450,000 525,000
1,100,000.................. 247,500 330,000 412,500 495,000 577,500
</TABLE>
- -------------------------
(1) The Company's tax-qualified Employee Pension Plan provides benefits computed
under (i) a career average formula at 1.25% of the employee's compensation
for each year of credited service, or (ii) a final average compensation
formula at 1.50% of the average of the employee's best five compensation
years multiplied by years of service after age 21 up to 35 years minus 2%
of the employee's Social Security benefit for each year of service up to 30
years, whichever formula provides the greater benefit. Since the formula
described in (ii) provides the greater benefit to the executive officers
named under Compensation of Officers herein, the Pension Plan Table
illustrates the estimated annual benefits payable under that formula (prior
to the applicable Social Security reduction).
The Company has also adopted a Supplemental Pension Benefit Plan which
provides benefits to the extent that ERISA limits the pension to which an
employee would otherwise be entitled under the Employee Pension Plan absent
such limitation; provided, however, that the maximum annual benefit payable
under the Plans on a combined basis is $606,629, as adjusted by any
increase in the urban consumer price index after January 1, 1995 to the
date of retirement.
The amounts shown are based on the pension being paid only during the
lifetime of the retired employee and would be reduced on an actuarially
equivalent basis in the event of a survivor benefit or other optional form
of payment. The years of service after age 21 for those executive officers
named under Compensation of Officers herein are: J. E. Antonini -- 31 years
(who relinquished his positions with the Company as of March 21, 1995); G.
R. Mrkonic -- 4 years (who resigned from the Company as of November 29,
1994); J. R. Thomas -- 38 years; R. S. Miller -- 34 years (who resigned
from the Company as of January 31, 1995); T. F. Murasky -- 21 years; and T.
W. Watkins -- 28 years.
(2) "Remuneration" is the final average compensation of an employee.
Compensation covered by the Plans for the executive officers named under
Compensation of Officers herein is the sum of their annual salary and
bonus, as shown in the Summary Compensation Table.
(3) The pension amounts shown in the table are subject to reduction by 2% of the
employee's Social Security benefit for each year of service up to a maximum
of 30 years of service. The maximum reduction at age 65 is currently
$8,633.
The Company also has adopted a Supplemental Executive Retirement Plan for
the purpose of providing supplemental retirement income to executive officers of
the Company who retire prior to age 65 or who are hired by the Company later in
their careers, whom the Board of Directors approves as eligible to receive
10
<PAGE> 14
benefits under the Plan. Benefits are determined by the Board of Directors based
on the position, responsibilities and rate of compensation of the employee,
benefits payable or which would have been payable under other plans, and such
other factors as the Board may deem relevant. Messrs. Antonini and Miller have
been designated participants in the Plan.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS. The Company has entered into
employment agreements with the executive officers named under Compensation of
Officers herein, as well as 28 other executive officers of the Company. These
agreements, which are substantially similar, provide that, if employment is
terminated by the Company other than for "cause" or "disability" or if an
officer terminates employment for "good reason," he or she will be entitled to
receive severance payments equal to his or her monthly base salary at the time
of termination, plus 1/12 the annual on-plan bonus targeted for the year in
which termination occurred. These payments will be made in equal monthly
installments during a one year severance period (two year severance period, in
the case of Mr. Antonini and all executive officers reporting directly to him)
following termination, and will be reduced by the amount of compensation
received from other employment (he or she has an obligation to seek such other
employment). In the event of termination for "cause" or "disability," the
executive officer would not receive any payments under these agreements. The
Company estimates that if the employment of Messrs. Thomas, Murasky and Watkins
were terminated in 1995, and severance payments were due to them under the
agreements, the total payments due for the entire severance period (assuming no
reduction for other employment) would be approximately $3,626,240. Joseph E.
Antonini relinquished his positions as President, Chief Executive Officer and
Director of the Company on March 21, 1995. In addition to any payments
contractually due him under his employment agreement, Mr. Antonini will,
commencing at the end of his two year severance period, receive pension benefits
based on his more than 31 years of service with the Company supplemented with
the equivalent of two additional years of service at his present rate of pay. As
a result, Mr. Antonini will receive retirement income in the approximate amount
of $527,064 per year (on a life income basis), the amount that would be paid for
33 years, two months of service at his current rate of pay. Richard S. Miller,
Executive Vice President, Super Kmart Centers, terminated his employment with
the Company on January 31, 1995. In addition to the one-time payment referenced
in the Summary Compensation Table and any payments contractually due him under
his employment agreement, Mr. Miller will, commencing in May 1995, receive
pension benefits based on his 34 years of service with the Company supplemented
with the equivalent of three additional months of service at his present rate of
pay. As a result, Mr. Miller will receive retirement income in the approximate
amount of $312,792 per year (on a life income basis), the amount that would be
paid for 34 years, three months of service at his current rate of pay. The
Company will also pay for certain tax and financial counseling services for
Messrs. Antonini and Miller for a one year period and will provide office space
and related services to Mr. Antonini during his two year severance period.
COMPENSATION AND INCENTIVES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Strategy and Objectives
The Company's executive compensation program is administered by the
Compensation and Incentives Committee of the Board of Directors. The Committee
is composed of five independent non-employee directors.
The Company has a long-standing philosophy that compensation of executive
officers and others should be directly and materially linked to the Company's
operating performance. The Committee believes that the achievement of
performance objectives over time is the primary determinant of share price. To
this end, executive compensation is weighted towards compensation paid on the
basis of performance. Therefore, in years when corporate performance has been
superior, executives have been well compensated, and in years such as 1993 and
1994 when performance has been below targeted goals, compensation has been
negatively affected.
The underlying objectives of the Committee's compensation strategy are to
attract and retain the best possible executive talent, to motivate those
executives to achieve optimum operating performance for the Company, to link
executive and shareholder interests through equity based plans and to provide a
compensation package that recognizes individual contributions as well as overall
business results.
11
<PAGE> 15
Each year the Committee conducts a full review of the Company's executive
compensation program, assisted as needed by an independent compensation
consultant retained by the Committee on an on-going basis, in order that the
Committee may assure that the Company's compensation program is properly
integrated with both the Company's annual and longer term objectives and is
competitive with compensation programs of other companies with which the Company
must directly compete for executive talent.
In addition, at the beginning of the fiscal year, near term and long term
performance goals are established for the Chief Executive Officer (the "CEO")
which are approved, and reviewed with the CEO, by the non-employee members of
the Board. At the end of the fiscal year, the CEO's progress toward achieving
these objectives is again reviewed with him by the non-employee directors, and
compensation decisions are based on their evaluation of performance for the
year.
The key components of the Company's executive compensation program consist
of salary, annual incentive bonus, stock purchases and stock options. The
Committee's policy with respect to each of these elements, including the basis
of the compensation awarded to the CEO for fiscal 1994, are discussed below.
Through these programs, a very significant portion of the Company's executive
compensation is linked to performance and the alignment of executive interests
with those of stockholders. The long-term compensation of the CEO and all
Company executive officers consists of stock options, which by their terms are
performance-based, and purchases under the Management Stock Purchase Plan, which
encourages increased levels of Company stock ownership. Approximately 39% of the
CEO's targeted 1994 short-term compensation (salary and annual incentive bonus)
consisted of performance-based elements and therefore was "at risk."
Consequently, because of the difficult year experienced by the Company and the
failure to achieve the performance goals approved by the non-employee members of
the Board at the beginning of fiscal 1994, the CEO received no annual incentive
bonus for 1994 and therefore received only 61% of his targeted short-term
compensation.
The Committee has also adopted a policy that, while maintaining an
appropriately competitive compensation program, it will endeavor to take the
necessary steps so that all compensation paid to executive officers will be tax
deductible to the Company under Section 162(m) of the Internal Revenue Code.
Base Salary
The base salary of executive officers is initially determined by analyzing
and evaluating the responsibilities of the position. Each position is then
matched to a comparable position in the competitive marketplace or, for
positions unique to the Company, to a position with a comparable level of
responsibility within the Company, and it is slotted into a structure of
graduated salary levels that has been established by reference to an annual
executive compensation survey in which the Company and other multi-billion
dollar U.S. retailers participate. (There were 17 multi-billion dollar U.S.
retailers participating in the survey at the time in 1994; this number may vary
slightly from year to year as the participating companies change from time to
time.) The range for each position consists of minimum, mid-point and maximum
salary levels. Generally, the salary goal for executive officers is targeted at
the 50th percentile of salaries for comparable positions. An annual salary
adjustment, within each applicable position/salary grade, is determined by
evaluating the performance of the individual (including the achievement of his
or her annual objectives). The retail companies included in the survey represent
a narrower group than the companies included in the Standard & Poor's Retail
Stores Composite Index, contained in the Company's stock performance graph
below. The Committee believes that the means by which comparative salary levels
are determined are appropriate since they enable the Company's executive salary
structure to reflect the practices of retailers that are comparable to the
Company in size and complexity. The Committee intends periodically to assess the
continued suitability of this approach and to modify it if appropriate.
In setting the CEO's 1994 base salary, the Committee took into account the
CEO's contribution to the Company's achievement of its financial and
nonfinancial objectives, a comparison of base salaries of chief executive
officers of retailers participating in the above-described annual executive
compensation survey and his success in meeting the performance objectives for
the year which were approved by the non-employee members of the Board. As of
February 1, 1994, the CEO was granted a base salary of $923,000, which
represented an increase of approximately 3.36% over his 1993 base salary of
$893,000. (3.36% was the average increase in base salary for 1994 for all
executive officers of the Company, excluding promotions.) This placed
12
<PAGE> 16
the CEO's salary at the 50th percentile of salaries for chief executive officers
of retailers participating in the above-described annual executive compensation
survey.
Annual Incentive Bonus
At the commencement of the fiscal year, incentive bonus criteria for
executive officers including performance objectives are recommended by the
Company and reviewed and approved by the Committee (as well as by the
non-employee members of the Board in the case of the CEO). Participants are
assigned threshold, target and maximum bonus levels. The target incentive bonus
may be earned if the bonus criteria including annual objectives are achieved,
declining incrementally to zero if achievement is below the threshold level of
90% of the bonus criteria, and increasing incrementally from 50% of the targeted
bonus at 90% achievement to a maximum of 225% of the targeted bonus to the
extent that achievement is exceeded by 25%.
Generally, at the annual incentive bonus opportunity for each executive
officer is based on a percentage of the salary range midpoint for a comparable
position within the companies participating in the above-described annual
executive compensation survey -- with the largest targeted bonus opportunity
being granted to the CEO (67% of such salary range midpoint) and the targeted
bonus opportunity granted to other executive officers decreasing incrementally
based on their position/salary grade (down to 27% of the applicable salary range
midpoint). In 1994, 100% of the annual incentive bonus opportunity for executive
officers was based on achievement of corporate or business unit income.
No incentive bonus for fiscal 1994 was paid to the CEO or any executive
officer of the Company (other than incentive payments made in connection with
the hiring of four new executive officers) because the Company failed to achieve
the applicable 1994 performance objectives approved by the Committee (as well as
by the non-employee members of the Board in the case of the CEO).
Stock Purchases and Options
The Company's long-term incentive plans for executive officers and other
key executives consists of the Management Stock Purchase Plan and the Stock
Option Plan.
The Committee has long believed that aligning management's interests with
those of stockholders is an important element of the Company's executive
compensation program and that encouraging increased levels of ownership in the
Company's Common Stock is a key ingredient in achieving this goal. Therefore, in
1994, the Company adopted, with stockholder approval, the Management Stock
Purchase Plan. The Plan provides that annual incentive bonus earned by the
executive officers and other executive participants under the Annual Incentive
Bonus Plan (the "annual bonus") shall be used to purchase shares of Common
Stock, such shares to be restricted from sale or transfer for a period of three
years. A participant may choose to use less than 100% of his or her annual bonus
to purchase such restricted shares, but in no event may use less than 20% (the
minimum, mandatory purchase).
The Company's Stock Option Plan also enables executive officers and other
key executives to develop and maintain a substantial stock ownership position in
the Company's Common Stock, and creates a direct link between executive
compensation and stockholder return -- as the benefit of a stock option cannot
be realized unless the stock price appreciates.
Under the Stock Option Plan, which was approved by stockholders, options
for Common Stock are granted annually to eligible executives. Generally, the
number of option shares granted each executive officer equals the number of
shares whose present value (under the Black-Scholes model) is equal to a
percentage of the salary range midpoint for a comparable position within the
companies participating in the above-described annual executive compensation
survey -- with the largest number of option shares being granted to the CEO (73%
of such salary range midpoint) and the number of option shares granted to other
executive officers decreasing incrementally based on their position/salary grade
(down to 30% of the applicable salary range midpoint). The number of option
shares granted may also be impacted by the executive's performance review. Stock
options are granted with an exercise price equal to the market price of the
Common Stock on the date of grant, have a three year cliff vesting period and
expire after ten years.
In 1994, the CEO was granted options to purchase 125,000 shares of Common
Stock at an exercise price of $18.88 per share. This was the same number of
option shares as was awarded to the CEO in 1993. The 1994
13
<PAGE> 17
award was at about the 50th percentile of long-term compensation awards for
chief executive officers of retailers participating in the above-described
annual executive compensation survey and had a significantly lower present value
than the 1993 award based on a Black-Scholes valuation.
The Committee granted no performance shares to the CEO or any other
executives of the Company or its subsidiaries in 1994 -- and it is the intention
of the Committee to make no future awards -- under the Performance Restricted
Stock Plan.
Compensation and Incentives Committee
F. J. McDonald, Chair
J. A. Califano, Jr.
J. P. Flannery
J. R. Munro
D. S. Perkins
14
<PAGE> 18
PERFORMANCE GRAPH
Set forth below is a graph comparing the total returns (assuming dividend
reinvestment) of the Company's Common Stock, the Standard & Poor's ("S&P") 500
Composite Index and the S&P Retail Stores Composite Index for the five-year
period commencing January 31, 1990.
COMPARISON OF CUMULATIVE TOTAL RETURN/JANUARY 1990 TO JANUARY 1995*
<TABLE>
<CAPTION>
RETAIL STORES
MEASUREMENT PERIOD COMPOSITE
(FISCAL YEAR COVERED) KMART CORP INDEX S&P INDEX
<S> <C> <C> <C>
JAN-90 $100.00 $100.00 $100.00
APR-90 $ 99.68 $106.32 $101.34
JUL-90 $103.59 $117.47 $110.09
OCT-90 $ 74.30 $ 91.43 $ 94.89
JAN-91 $ 96.96 $116.26 $107.41
APR-91 $128.32 $139.79 $119.14
JUL-91 $152.21 $151.94 $124.17
OCT-91 $139.34 $146.51 $126.68
JAN-92 $161.24 $164.07 $133.42
APR-92 $166.38 $160.70 $135.89
JUL-92 $166.28 $167.47 $140.02
OCT-92 $179.85 $183.08 $139.25
JAN-93 $161.58 $195.40 $146.72
APR-93 $157.96 $178.38 $148.40
JUL-93 $143.85 $181.73 $152.18
OCT-93 $173.72 $192.86 $159.97
JAN-94 $141.46 $184.22 $162.88
APR-94 $118.77 $186.20 $156.30
JUL-94 $121.59 $182.51 $160.07
OCT-94 $123.30 $186.00 $166.17
JAN-95 $103.50 $173.56 $165.64
</TABLE>
In February 1990, the Company announced a Kmart Store Renewal Program that,
over a six-year period ending January 1996, would result in the modernization of
its U.S. Kmart Store base. In the 1993 and 1994 Proxy Statements, a supplemental
graph was included for three-year and four-year periods, respectively,
commencing January 31, 1990, since that date represented the start of this major
strategic initiative. Since the five-year graph now corresponds with the
beginning of the Kmart Store Renewal Program, a supplemental graph is not
included in this year's Proxy Statement.
The graphs and related disclosure contained in this section of the Proxy
Statement are not incorporated by reference into any prior filings by the
Company under the Securities Act of 1933 or the Securities Exchange Act of 1934
which incorporate future filings or portions thereof.
15
<PAGE> 19
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
Subject to stockholder ratification, the firm of Price Waterhouse has been
appointed by the Board as independent accountants to audit the Company's books
for fiscal 1995, upon recommendation of the Audit Committee. Representatives of
Price Waterhouse will be present at the Annual Meeting, will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions from stockholders.
APPROVAL OF THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE AS
INDEPENDENT ACCOUNTANTS WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
VOTES CAST BY HOLDERS OF COMMON STOCK AND SERIES C PREFERRED STOCK, VOTING
TOGETHER AS ONE CLASS, WHO ARE PRESENT IN PERSON OR REPRESENTED BY PROXY AND
ENTITLED TO VOTE AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3 -- STOCKHOLDER PROPOSAL
The Company has been advised that the Board of Trustees of the Laborers'
District Council and Contractors' Pension Fund, 7420 Worthington - Galena Road,
Worthington, Ohio 43085, which is the beneficial owner of 93,750 shares of
Common Stock of the Company, intends to present the following proposal at the
Annual Meeting of Stockholders, which proposal is opposed by the Board.
"RESOLVED: That the shareholders of Kmart Corporation ("Company") recommend
that our Board of Directors take the necessary steps to adopt and implement a
policy of cumulative voting for all elections of directors."
STOCKHOLDER'S SUPPORTING STATEMENT
"The election of corporate directors is the primary vehicle for
shareholders to influence corporate affairs and exert accountability on
management. We believe that the Company's financial performance is affected by
its corporate governance policies and procedures and the level of accountability
they impose. We believe cumulative voting increases the possibility of electing
independent-minded directors that will enforce management's accountability to
shareholders.
The election of independent-minded directors can have an invigorating
effect on the Board of Directors, fostering improved financial performance and
increased shareholder wealth. Management nominees often bow to a Chairman's
desires on business strategies and executive pay without question.
Cumulative voting grants shareholders the number of votes equal to the
number of shares owned multiplied by the number of directors to be elected. The
shareholder may cast all of his or her votes for a single director or apportion
the votes among the candidates. At Kmart Corporation, shareholders owning 10% of
the outstanding shares casting all their votes for one individual would be
required to elect one director, absent any other support.
Currently, the Company's Board of Directors is composed entirely of
management nominees. Cumulative voting places a check and balance on management
nominees by creating more competitive elections.
The argument that the adoption of cumulative voting will lead to the
election of dissidents to the Board of Directors who represent the special
interests of a minority of shareholders instead of the best interests of all
shareholders is misleading. Legally binding standards of fiduciary duty compel
all directors, no matter what combination of shareholders elected them, to act
in the best interest of all shareholders. Any director who fails to respect the
fiduciary duties of loyalty and/or care exposes himself or herself to
significant liability. Legal recourse is available to correct any breaches of
fiduciary duty.
We do not accept the claim that in the complex world our Company competes
in, an honest difference of opinion over business strategies and other policies
of the Company makes the minority view a so called "special interest." Quite the
contrary, dissent stimulates debate which leads to thoughtful action. Cumulative
16
<PAGE> 20
voting will increase the competitiveness of director elections. We believe
competitive elections for director will deter complacency on the Board of
Directors, which in turn will improve the performance of our Company and
increase shareholder wealth.
We urge your support for this proposal."
BOARD OF DIRECTORS' STATEMENT OPPOSING STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. Directors
should be elected on their ability and commitment to represent the best
interests of the Company and its stockholders as a whole. This principle is best
served when each director is elected by a majority vote of the stockholders.
Cumulative voting can enable, and indeed encourage, a relatively small
special-interest group to elect one or more directors. Directors so elected
might feel compelled to act in the interest of the group that elected them
rather than in the interest of all stockholders.
Cumulative voting introduces the probability of partisanship among board
members, which could undermine their ability to work together effectively. The
variety and complexity of issues facing the Company necessitates that no actual
or apparent influence bring into question the objectivity of the Board. These
factors might also discourage qualified individuals from accepting an invitation
to serve on the Board.
The Board encourages stockholders to present director candidates to the
Board's Nominating Committee, which assists and advises the Board in connection
with Board membership. Notably, the Nominating Committee consists solely of
non-employee directors. In addition, it should be noted that the Board will have
12 non-employee directors and that the Board elected a non-executive Chairman of
the Board in January 1995.
In the Board's opinion, the present method of electing directors where each
director is elected by a plurality of the votes cast by stockholders, best
assures that the directors will guide the affairs of the Company for the benefit
of all stockholders.
APPROVAL OF THIS STOCKHOLDER PROPOSAL WILL REQUIRE THE AFFIRMATIVE VOTE OF
A MAJORITY OF THE VOTES CAST BY HOLDERS OF COMMON STOCK AND SERIES C PREFERRED
STOCK VOTING TOGETHER AS ONE CLASS, WHO ARE PRESENT IN PERSON OR REPRESENTED BY
PROXY AND ENTITLED TO VOTE AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
PROPOSAL 4 -- STOCKHOLDER PROPOSAL
The Company has been advised that Gerald J. Switzer, 17866 Beverly Road,
Birmingham, Michigan 48025, who is the beneficial owner of 12,892 shares of
Common Stock, intends to present the following proposal at the Annual Meeting,
which proposal is opposed by the Board.
"RESOLVED: That the Board of Directors is hereby requested to amend the
Articles of Incorporation to provide that at future elections all directors
shall stand for election annually and not by classes as is now provided."
STOCKHOLDER'S SUPPORTING STATEMENT
"The ability to elect directors is the single most important right of the
stockholders. This right is significantly impaired when a class system for the
election of directors is in effect as is now the case at Kmart. The class system
makes it difficult for Stockholders to make meaningful changes to a Board of
Directors and subsequently a management team as a majority of the directors is
never up for election at any one time.
The usual management arguments against such a proposal, including those of
maintaining corporate stability and continuity as well as protecting against
unreasonable or sudden changes in control, are not always valid. Maintaining
corporate stability and continuity is not desirable if it serves to entrench an
ineffective board and management team. Protecting against changes in control,
which cannot occur without stockholder approval anyway, is not desirable if it
serves to discourage changes favorable to the Stockholders. In the final
17
<PAGE> 21
analysis, a Board of Directors whose performance is satisfactory to the
Stockholders is not usually voted out of office.
The performance of our Company over the last several years has not been
stellar and over the last two years has been disastrous as indicated by falling
earnings and a plummeting stock price. While I believe our Board of Directors
consists of honorable people who have been attempting to improve this
performance, their results have been disappointing. The rapid expansion of
Wal-Mart necessitates quickly correcting current performance deficiencies.
I urge your support of this proposal. It is only prudent, given the current
circumstances, that we as Stockholders place ourselves in the best possible
position to promote any necessary changes to the board and subsequently our
management team, should their current efforts fail to create a satisfactory
performance by the next annual meeting. The elimination of the class system of
electing directors is necessary to accomplish this."
BOARD OF DIRECTORS' STATEMENT OPPOSING STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. When
classification of the Board of Directors was proposed at the 1986 annual
meeting, the holders of 58% of the outstanding shares of the Company (which
represented over 75% of the shares voted) favored amending the Company's
Articles of Incorporation to provide for a staggered board of directors where
approximately one third of the directors are elected annually. Further at the
Company's 1990 Annual Meeting of Stockholders, virtually the same stockholder
proposal as set forth above was presented and over 58% of the voting shares
voted against the proposal.
At the time of adoption, the Board of Directors, as well as a majority of
stockholders believed, that a classified board was in the best interests of the
Company and its stockholders. They believed that a classified board offered the
Company valuable time in the event of an unsolicited takeover attempt
unfavorable to stockholders by giving incumbent directors the time and leverage
necessary to negotiate a more favorable and fair result, or to consider
appropriate alternative strategies, in order to more effectively represent the
interests of all stockholders of the Company. The Board still feels that way.
It is the Board's belief that when there is an unsolicited and unfavorable
takeover attempt, stockholders of a company with a classified board are in a
position to receive a price premium greater than that received by stockholders
of a company without a classified board. This is the case because, absent a
classified board, the time period during which an auction can be run to sell a
company may be more limited since the time to gain control of the board would be
shortened significantly if the entire board could be removed at one time.
Similarly, a board's ability to exact an additional premium for its cooperation
and assistance would be limited. The reality of these concerns is underscored by
the fact that a significant number of unsolicited takeover attempts in the past
several years have been accompanied by the pressure tactic of a proxy contest to
remove and replace directors. Without a classified board, the Company may be
limited in its ability to negotiate and explore alternatives so as to maximize
stockholder values. In addition, since approximately one-third of the Board is
elected annually, stockholders are assured an opportunity at least once a year
to express their wishes to the Board.
The Board is firmly committed to improving performance and enhancing
stockholder value and does not believe that the presence of a classified board
in any way diminishes this commitment or the Board's accountability to
stockholders.
APPROVAL OF THIS STOCKHOLDER PROPOSAL WILL REQUIRE THE AFFIRMATIVE VOTE OF
A MAJORITY OF THE VOTES CAST BY HOLDERS OF COMMON STOCK AND SERIES C PREFERRED
STOCK, VOTING TOGETHER AS ONE CLASS, WHO ARE PRESENT IN PERSON OR REPRESENTED BY
PROXY AND ENTITLED TO VOTE AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
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<PAGE> 22
OTHER BUSINESS/FUTURE STOCKHOLDER PROPOSALS
The Board of Directors knows of no other matters to be voted upon at the
Meeting. However, if any other matters properly come before the Meeting, it is
the intention of the persons named in the enclosed form of proxy to vote such
proxy in accordance with their judgment on such matters.
No person is authorized to give any information or to make any
representation other than that contained in this Proxy Statement, and if given
or made, such information may not be relied upon as having been authorized.
Pursuant to the General Rules under the Securities Exchange Act of 1934,
proposals of stockholders intended to be presented to the 1996 Annual Meeting of
Stockholders must be received by the Secretary of the Company on or before
December 29, 1995 to be considered for inclusion in the proxy materials for that
meeting. In addition, the By-laws of the Company contain requirements relating
to the timing and content of the notice which stockholders must provide to the
Secretary of the Company for any matter to be properly presented at a
stockholders meeting.
A copy of the Company's 1994 Annual Report on Form 10-K will be furnished
without charge to any stockholder upon written request. All written requests
should be directed to: Kmart Corporation, Corporate Reporting Department, 3100
West Big Beaver Road, Troy, Michigan 48084-3163.
19
<PAGE> 23
DIRECTIONS TO ANNUAL MEETING
[MAP]
Hyatt Regency Dearborn
Fairlane Town Center
Dearborn, Michigan 48126
(313) 593-1234
Telefax (313) 593-3366
Located at the Michigan Avenue exit of the Southfield Freeway.
<PAGE> 24
DIRECTIONS TO ANNUAL MEETING
[MAP]
Hyatt Regency Dearborn
Fairlane Town Center
Dearborn, Michigan 48126
(313) 593-1234
Telefax (313) 593-3366
Located at the Michigan Avenue exit of the Southfield Freeway.
- --------------------------------------------------------------------------------
KMART CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 1995
The signer(s) hereby appoint(s) Nancie W. LaDuke and Anthony N.
Palizzi, or either one of them, with power of substitution in each,
proxies to vote all common stock of the signer(s) in Kmart Corporation at
the Annual Meeting of Stockholders to be held at the Hyatt Regency
Dearborn, Fairlane Town Center, Dearborn, Michigan 48126, on Tuesday, May P
23, 1995 at 9:00 a.m. (local time), and at all adjournments thereof, as R
specified on the matters indicated on the reverse side hereof, and in O
their discretion on any other business that may properly come before such X
Meeting. This proxy is solicited on behalf of the Board of Directors. Y
SEE
REVERSE
SIDE
<PAGE> 25
<TABLE>
<S><C>
[KMART LOGO]
PROPOSALS
Proposal 1: To elect each of five directors for a term expiring in the year indicated;
1996 - Lawrence Perlman
1998 - Lilyan H. Affinito, Richard G. Cline, Willie D. Davis and Joseph P. Flannery
Proposal 2: To ratify the appointment of Price Waterhouse as independent accountants of the Company
for the 1995 fiscal year.
Proposal 3: To act upon a stockholder proposal, if presented at the meeting, regarding voting.
Proposal 4: To act upon a stockholder proposal, if presented at the meeting, regarding the board of directors.
V FOLD AND DETACH HERE V (See reverse side for directions)
- -----------------------------------------------------------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR Proposals 1 and 2. The Board of Directors recommends a vote
AGAINST Proposals 3 and 4.
WITHHOLD
FOR ALL FROM ALL FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS [ ] [ ] Proposal 2 [ ] [ ] [ ] Proposal 3 [ ] [ ] [ ]
Proposal 4 [ ] [ ] [ ]
_____________________________________________________
If you do not wish your shares to be voted "FOR" a
particular nominee, write the nominee(s) name above.
Your shares will be voted for the remaining nominees.
Where no voting instructions are given, the shares represented by this Proxy will be
VOTED FOR Proposals 1 and 2 and VOTED AGAINST Proposals 3 and 4, as set forth in
the Proxy Statement.
For Change of Address If You Plan To Attend Meeting,
Mark Here And Note at Left. [ ] Mark Here. [ ]
RECEIPT IS HEREBY ACKNOWLEDGED OF THE KMART NOTICE OF MEETING AND PROXY STATEMENT.
IMPORTANT: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THE PROXY. WHERE SHARES
ARE HELD JOINTLY, BOTH HOLDERS SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL TITLE AS SUCH. IF THE HOLDER
IS A CORPORATION, EXECUTE IN FULL CORPORATE NAME BY AUTHORIZED OFFICER.
Signature: _______________________________________________ Date: ___________________
Signature: _______________________________________________ Date: ___________________
</TABLE>
