<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec.240.14a-11(c) or Sec.240.14a-12
KMART CORPORATION
-----------------
(Name of Registrant as Specified In Its Charter)
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE
-----------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
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4) Date Filed: .........................................................
<PAGE>
Kmart Independent Shareholders' Committee
2100 L Street, NW
Suite 210
Washington, DC 20037
Dear Kmart Shareholder:
Kmart has reached a crossroads in its history. After much prodding from
many shareholders like yourself, Kmart's management is finally focused on its
core discount stores and is attempting to correct the profound operational
problems that our Company has faced for a number of years. We believe the
ultimate success of this turnaround effort will be based on exceptionally
vigorous oversight by our Board of Directors. This year the Kmart Independent
Shareholders Committee proposes resolutions which, if passed and carried out by
the Board, will ensure greater Director accountability, more closely align
Directors' interests to shareholders' and cause an examination of all options
which could enhance shareholder value, including the merger or sale of the
Company.
We urge you to review the proxy materials carefully and to vote your shares
at this year's Annual Meeting. Thank you for your consideration.
Sincerely,
Kmart Independent Shareholders' Committee
/s/ Michael R. Zucker /s/ William Patterson
- ----------------------- -----------------------
Michael R. Zucker William Patterson
<PAGE>
Kmart Independent Shareholders' Committee
2100 L Street, NW
Suite 210
Washington, DC 20037
PROXY STATEMENT
OF
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE
IN CONNECTION WITH THE
1996 ANNUAL MEETING OF SHAREHOLDERS
OF THE KMART CORPORATION
April 23, 1996
The Kmart Independent Shareholders' Committee (the "Independent
Shareholders") furnish this Proxy Statement in connection with the solicitation
of proxies for use at the Annual Meeting (the "Annual Meeting") of Shareholders
of the Kmart Corporation ("Kmart" or the "Company") to be held on Tuesday, May
21, 1996 at the Fisher Theater, located in the Fisher Building, 3011 West Grand
Boulevard, Detroit, Michigan at 10:00 a.m. E.S.T. or at any adjournment thereof.
Copies of the Proxy Statement and form of proxy are being mailed by the
Independent Shareholders to shareholders on or about April 23, 1996.
Six short years ago Kmart was the number one retailer in the world,
sporting a net income for the year of $756 million. Today it is hard to imagine
Kmart ever regaining the top position. In fact we believe that, unless the
Company can reverse its present course the long term prospects for Kmart's
survival as an independent company are poor.
. Since 1992 earnings per share have dropped from $2.06 to a loss of $1.25 for
1995. Total losses in 1995 were $571 million.
. Not only has the battle for market share been lost to Wal-Mart, but the
leading retailer now has sales triple those of Kmart's.
-----------------------
. Today Kmart's debt has been downgraded to junk status by both major debt
rating agencies.
. Since 1992 the price of Kmart stock has fallen 66%, from a high of $28.12 to
$9.50 as of April 16, 1996.
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A majority of the Directors in office during the period of this
precipitous decline in the value of our Company still sit on our Board today.
Kmart's woeful performance during their tenure speaks for itself:
BOARD MEMBERS PRESIDING OVER KMART AS STOCK PRICE PLUNGES
Prices in U.S. dollars
Adjusted for stock dividends and stock splits as of 3/29/96
Monthly prices 1/01/92 to 3/29/96
Month Months Months Months Last
Ending Volume High/Ask Low/Bid Cls/Bid
- ----------- ----------- ------------- ------------- ----------
1/31/92 29040400 25 5/8 22 7/16 24 1/2
2/28/92 21712200 26 3/4 24 1/4 25 3/4
3/31/92 24821400 27 1/2 24 1/2 26 1/2
4/30/92 22429400 26 9/16 24 9/16 24 7/8
5/29/92 23234200 25 1/4 22 13/16 24
6/30/92 23490300 24 5/16 20 7/8 23
7/31/92 25061800 24 7/8 21 1/2 24 5/8
8/31/92 17975200 25 3/8 22 7/8 23 1/2
9/30/92 15419100 25 1/2 23 3/8 25 1/2
10/30/92 18513600 26 7/8 23 3/4 26 3/8
11/30/92 19827700 28 1/8 25 3/8 27 3/4
12/31/92 31217300 26 7/8 23 7/8 24 1/2
1/29/93 37074800 24 7/8 22 3/8 23 1/4
2/26/93 23180100 24 7/8 22 7/8 23 3/8
3/31/93 25330400 25 3/4 23 3/8 23 7/8
4/30/93 29282700 23 7/8 22 22 3/4
5/31/93 27217700 23 7/8 22 22 1/2 #
6/30/93 36848800 23 1/8 19 1/2 21
7/30/93 31155200 21 19 7/8 20 1/2
8/31/93 39966100 23 3/8 20 3/8 23
9/30/93 25922000 24 3/8 21 5/8 24 1/4
10/29/93 25423000 25 22 3/4 24 1/2
11/30/93 22389100 24 7/8 22 1/2 23 5/8
12/31/93 23749500 23 5/8 20 3/4 21 1/2
1/31/94 39111000 22 19 1/4 19 5/8
2/28/94 32676000 19 3/4 18 1/2 19
3/31/94 31978700 19 1/4 17 3/4 18 1/8
4/29/94 25968500 18 5/8 15 3/4 16 3/8
5/31/94 32286600 16 3/4 14 3/4 15
6/30/94 34623100 16 1/4 14 7/8 15 1/2
7/29/94 22776100 16 5/8 15 1/2 16 1/2
8/31/94 26834800 18 1/8 16 3/8 17 3/32
9/30/94 27329300 18 5/8 17 17 7/8
10/31/94 27608200 18 15 16 1/2
11/30/94 34679200 16 3/4 13 3/4 14 1/2
12/30/94 37109400 14 5/8 12 1/2 13
1/31/95 32731500 14 3/8 13 13 5/8
2/28/95 28459000 14 5/8 12 3/4 12 3/4
3/31/95 49710900 13 7/8 11 7/8 13 3/4
4/28/95 53056600 15 5/8 13 1/2 13 7/8
5/31/95 37005300 13 7/8 12 1/2 12 3/4
6/30/95 56636400 15 1/8 12 5/8 14 5/8
7/31/95 35644100 17 7/8 14 1/2 15 3/4
8/31/95 34903800 16 1/4 12 7/8 13 5/8
9/29/95 23120200 15 13 1/2 14 1/2
10/31/95 109175100 14 3/4 8 1/8 8 1/8
11/30/95 176075000 9 1/2 7 1/4 7 3/4
12/29/95 137780000 8 1/8 5 7/8 7 1/8
1/31/96 87386000 8 1/4 5 3/4 5 7/8
2/29/96 66995400 7 1/2 6 7
3/29/96 154531000 11 7 1/8 9 3/8
# Close from earlier in period
Source: MicroQuote II Database and Kmart Proxies.
Following the Annual Meeting, those who oversaw the decline will no longer
constitute a majority of the Board of Directors. We believe it is critical that
Kmart continue to replace those remaining directors associated with the failed
policies of the past as quickly as possible, if the Board is to successfully
take the steps necessary to ensure a turnaround. Time is growing short. As
shareholders we have the opportunity this year to send a powerful mandate to the
Board to act decisively by insisting on greater Director accountability,
aligning Directors' interests more closely with shareholders and considering all
options, including sale or merger, that could enhance shareholder value.
To this end we propose the following:
. Holding annual board elections for all directors through the elimination of
classified director terms.
. Eliminating the non-employee directors' retirement plan.
. Undertaking a formal study to review all options for restoring Kmart share
value, including a sale or merger of the Company.
The Independent Shareholders' Committee urges all shareholders to attend
the meeting in person. If you are unable to attend in person and wish to have
your shares voted, please sign and date the enclosed proxy and return it in the
postpaid envelope as promptly as possible. By returning the enclosed proxy,
shareholders will be able to vote on all matters described in Management's proxy
statement, including the election of Directors proposed by Management.
PLEASE SIGN, DATE AND RETURN TODAY THE ENCLOSED BLUE PROXY CARD TO:
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE
2100 L STREET, NW
SUITE 210
WASHINGTON, DC 20037
ELECTION OF DIRECTORS
VOTING PROCEDURES
The accompanying BLUE Annual Meeting proxy card will be voted at the Annual
Meeting in accordance with your instructions on such card. You may vote FOR the
election of each of the Company's Nominees as Directors or withhold authority to
vote for the Company's Nominees by marking the proper box on the BLUE Annual
Meeting proxy card. You may also withhold your vote from any one or more of the
Nominees by writing the name of such nominee(s) in the space provided on the
BLUE Annual Meeting proxy card. IF NO MARKING IS MADE, YOU WILL BE DEEMED TO
HAVE GIVEN A DIRECTION TO VOTE THE SHARES REPRESENTED BY THE BLUE
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PROXY CARD FOR THE ELECTION OF ALL OF THE COMPANY'S NOMINEES PROVIDED THAT YOU
HAVE SIGNED AND DATED THE PROXY CARD.
OTHER MATTERS
Kmart's directors are also soliciting proxies for the following proposals
to be brought before the Annual Meeting: an amendment to the Company's
Directors' Stock Plan regarding non-employee directors' stock compensation
(proposal 2); an amendment to the Company's 1992 Stock Option Plan regarding the
authority of the Compensation and Incentives Committee (proposal 3); and the
ratification of the appointment of auditors (proposal 4). The Company is also
soliciting proxies against two proposals by other Kmart shareholders in
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connection with the vesting of stock options (proposal 5) and cumulative voting
(proposal 6). The votes required for approval of such proposals will be as
prescribed in Management's 1996 Proxy Statement (incorporated herein by
reference).
THE INDEPENDENT SHAREHOLDERS' COMMITTEE URGES A VOTE FOR PROPOSALS 2, 4 AND
---
6 AND A VOTE AGAINST PROPOSALS 3 AND 5.
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PROPOSAL #2
- -----------
This proposal (as described in Management's 1996 Proxy statement) would
amend the Directors' stock plan in two ways. First, it would increase the
mandatory Common Stock portion of the Director's annual retainer from 20% to 50%
and permit Directors to elect to receive up to 100% of their annual retainer in
Common Stock. Second, it would credit non-employee directors with stock units
equal to 50% of the current annual retainer (which this year have a value of
$25,000) for up to ten years. These stock units are distributed in shares of
Common Stock to Directors at the time of their retirement from the Board.
UNLIKE THE INDEPENDENT SHAREHOLDERS' PROPOSAL #8, THIS PROPOSAL DOES NOT
ELIMINATE DIRECTORS' RETIREMENT BENEFITS.
On page 9 of this proxy, by proposal #8, the Independent Shareholders'
Committee has proposed that the Board eliminate the retirement plan for non-
employee directors. In contrast, the Board has only endorsed the concept of
freezing their retirement benefits in their proposal, not eliminating them. The
- --------
Board's willingness to freeze its retirement benefits is directly tied to
shareholder passage of the amendments outlined above. These amendments would
replace the current retirement plan for non-employee directors with stock unit
retirement benefits.
WE RELUCTANTLY SUPPORT THESE PROPOSED CHANGES TO THE DIRECTORS' STOCK PLAN
BECAUSE THEY ARE PREFERABLE TO MAINTAINING THE STATUS QUO.
We do not believe a new retirement benefit for Directors is necessary or
appropriate; however, if shareholders fail to approve this proposal they will
also lose the opportunity to at least shift retirement benefits from cash to
stock, and will fail to support the Board's decision to shift a greater
proportion of Directors' retainers to stock. Each of these steps more closely
aligns the interests of directors with those of shareholders and for this reason
should be supported.
4
<PAGE>
PLEASE CAST YOUR VOTE FOR THIS PROPOSAL.
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PROPOSAL #3
- -----------
The shareholders have been asked to approve amendments to the Company's
1992 Stock Option Plan. These amendments would give the Compensation and
Incentives Committee of the Board of Directors greater authority and discretion
in determining the size of stock option awards to executives and the exercise
period following termination of employment. The complete text of these
amendments are set forth in Annex A of Kmart's proxy statement.
The Independent Shareholders recommend a vote AGAINST these amendments.
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THE COMPENSATION AND INCENTIVES COMMITTEE ALREADY POSSESSES ADEQUATE AUTHORITY
TO ATTRACT TOP EXECUTIVES AS EVIDENCED BY THE GENEROUS COMPENSATION PACKAGES
GIVEN TO MESSRS. HALL AND FLICK.
We recognize that the Compensation and Incentives Committee requires
flexibility if it is to attract talented executives to assist the Company in its
turnaround initiatives. However, we believe the compensation packages offered
to Mr. Hall, Chairman and Chief Executive Officer of Kmart, and Mr. Flick,
Executive Vice President, President and General Merchandise Manager U.S. Kmart
Stores, as illustrated in the charts below, and discussed more fully in the
Company's proxy materials, are more than adequate.
GUARANTEED CASH COMPENSATION
Mr. Hall . $1 million one-time hiring payment
. $1 million annual salary
. $1 million guaranteed incentive bonus for 1995
Mr. Flick*. $1 million one-time hiring payment
. $600,000 annual salary
. $300,000 guaranteed incentive bonus for 1996
* In addition, Mr. Flick may take advantage of a $1 million interest free loan
as part of his employment agreement.
COMMON STOCK
Mr. Hall . Option to purchase 3.45 million shares of Common Stock
. 500,000 shares of restricted Common Stock under the company's
Performance Restricted Stock Plan
Mr. Flick . Option to purchase 400,000 shares of Common Stock at time of hiring
. Option to purchase 250,000 shares of Common Stock in 1996.
Given these substantial compensation packages, we do not feel the
Compensation and Incentives Committee should be given the ability to grant
options to an executive of up to 1 million shares per year.
5
<PAGE>
PLEASE CAST YOUR VOTE AGAINST THIS RESOLUTION.
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PROPOSAL #4
- -----------
This proposal seeks the ratification of Price Waterhouse LLP as independent
accountants for fiscal 1996.
PLEASE CAST YOUR VOTE FOR THIS RESOLUTION.
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PROPOSAL #5
- -----------
This proposal asks the Board to make stock option awards in excess of 5,000
shares contingent on the achievement of stock price increases. While we
generally support tighter control of the availability of stock options for
executives, we do not find the overall structure of the Company's stock
incentive system to be unreasonable. The shareholder's proposal to tie an
option vesting schedule to stock price performance does not appear to be
necessary.
PLEASE CAST YOUR VOTE AGAINST THIS RESOLUTION.
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PROPOSAL #6
- -----------
This proposal asks the Board to adopt cumulative voting for the election of
directors. We support this proposal which would allow shareholders to
concentrate their votes on a single candidate for the Board of Directors. We
believe this option will make it far easier for shareholders to elect
independent nominees for the Board of Directors who are not supported by
incumbent management or the Board.
PLEASE CAST YOUR VOTE FOR THIS RESOLUTION.
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RESOLUTIONS PROPOSED BY THE INDEPENDENT SHAREHOLDERS
PROPOSAL #7: TO DECLASSIFY THE BOARD OF DIRECTORS.
- --------------------------------------------------
The Independent Shareholders' Committee proposes that the shareholders of Kmart
adopt the following resolution:
"RESOLVED, that the shareholders of Kmart Corporation (the "Corporation")
hereby request that the Board of Directors amend the Articles of
Incorporation to eliminate the classification of the Board of Directors
of the Corporation and to require that all Directors of the Corporation
stand for election annually, all in a manner permitted by applicable
law."
This proposal seeks to declassify the Board of Directors so that all
Directors will stand for election annually. A similar proposal passed at last
year's annual meeting of shareholders. It received approximately 60.5% of the
vote, as tabulated by the Company, but the Board failed to take action to
implement the proposal. In our view, this non-responsiveness on the part of
the
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Board underscores the degree to which this classified Board has become
distanced from the legitimate concerns and interests of the shareholders.
GIVEN KMART'S DISAPPOINTING RESULTS AND ONGOING PROBLEMS, THE PERFORMANCE OF
THE BOARD OF DIRECTORS SHOULD BE ANNUALLY REVIEWED BY SHAREHOLDERS.
We do not believe that Kmart's classified board system has served the best
interests of shareholders. We view staggered board terms as an entrenchment
device, which at Kmart protected the former Chairman, Joseph Antonini, and the
majority of the members of our current Board of Directors from shareholder
disaffection. If ever there was a company whose Board of Directors needed to be
annually accountable to shareholders, it is Kmart:
. As of March of this year, for each of 12 consecutive quarters, Kmart's
quarter-to-quarter results have declined when compared to the corresponding
quarter of the previous year.
. In January, the price of Kmart shares hit its lowest level in over 28
years. (In that same twenty-eight-year period, the Dow Jones Industrial
Average increased 511%, from 879.12 to 4,491.67.) As the chart below
illustrates, the Company has consistently performed well below its peers in
the retail industry.
COMPARISON OF CUMULATIVE TOTAL RETURN/JANUARY 1991 TO JANUARY 1996*
MEASUREMENT KMART CORP RETAIL STORES S&P INDEX
PERIOD COMPOSITE INDEX
(FISCAL YEAR)
COVERED)
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
JAN-96 $ 48.49 $162.13 $215.22
Assumes $100 invested on January 31, 1991 in the Company's Common Stock, S&P 500
Composite Index and S&P Retail Stores Composite Index.
*Total Return Assumes Reinvestment of Dividends
. Of the 1,000 companies whose total yield to shareholders was compared in
the Wall Street Journal recently, Kmart was the 10th worst over the last
year, the 5th worst over three years and the 18th worst over five years.
In our view, the absence of annual accountability of Board members to the
shareholders contributed significantly to a lapse of vigilance. The Board
delayed dismissing Mr. Antonini from the Company even after the operational and
strategic failures of his regime were painfully obvious to shareholders, and it
was over nine months after shareholders refused to approve the Company's 1994
specialty store spin-off plan that Mr. Antonini actually resigned. In fact, the
Board first demoted Mr. Antonini, hired new executives and only then gained his
resignation. This process was protracted, when it needed to be quick, and added
to the challenge of our new Chief Executive Officer by saddling him with
executives not of his choosing.
Despite the recent efforts of Kmart's newly appointed top executives, a
turnaround of our Company is far from assured. The problems Kmart faces are
fundamental and broad in scope. The refinancing of over $3.6 billion of real
estate related debt and bank credit facilities must be accomplished by October
of 1997 or our Company's solvency will once again be at risk. Kmart also must
address its operational deficiencies quickly. Many customers have begun to look
upon Kmart stores primarily as places to shop on the basis of locational
convenience, rather than as destinations, and customers appear to prefer Wal-
Mart and Target over Kmart for price and product selection. Kmart Chairman
Floyd Hall acknowledged this problem when he lamented in a meeting with analysts
late last year that 49% of Wal-Mart's customers drive past a Kmart to get
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to a Wal-Mart, and that customers give Kmart lower ratings than Target or Wal-
Mart in three critical categories: quality, value, and service.
KMART'S CLASSIFIED BOARD IS AN ANTI-TAKEOVER DEVICE WHICH NEITHER ADDS
SHAREHOLDER VALUE NOR IS NEEDED TO PROTECT THE INTERESTS OF SHAREHOLDERS.
Studies indicate that classified boards and other anti-takeover devices
have an adverse impact on shareholder value. In 1991 a study by Lilli Gordon of
the Gordon Group and John Pound of Harvard University found that companies with
restrictive corporate governance structures, including those with classified
boards, are "significantly less likely to exhibit outstanding long-term
performance relative to their industry peers." This conclusion could certainly
be applied to Kmart.
We believe the application of the Stacey, Bennett, and Randall Shareholder
Equity Act, commonly referred to as Michigan's Fair Price and Control Share
Statutes, and the proper exercise of discretion by our Board of Directors, would
protect shareholders in the event an attempted takeover of our Company was
coercive or otherwise not in the interests of all shareholders. These laws were
designed to make it difficult for any acquiror to engage in greenmail or two
tier offers, or other attempted takeovers that would be unfair to the
shareholders. In any case, we do not believe that declassifying our Board of
Directors will lead to abusive takeover activity. In fact, we firmly believe
that this is a critical juncture for heightened Board accountability and for the
stripping away of management entrenchment devices.
PLEASE CAST YOUR VOTE FOR THIS RESOLUTION.
---
Proposal #7 is precatory and nonbinding on the Board, even if approved by
shareholders. In order to implement this proposal, first, the Board must
respect what we believe would be the clearly stated will of its shareholders by
passing a Board Resolution adopting it. Only then could this proposal be
submitted to shareholders for adoption as binding, which would require the
affirmative vote of 58% of the outstanding shares of Common Stock.
PROPOSAL #8: TO ELIMINATE THE CURRENT DIRECTOR RETIREMENT PLAN.
- ---------------------------------------------------------------
The Independent Shareholders' Committee proposes that the shareholders of Kmart
adopt the following resolution:
"RESOLVED, that the shareholders of Kmart Corporation request that the
Board of Directors eliminate the current Director Retirement Plan and
refrain from providing any future pension or other retirement plans to
non-employee outside Directors unless such plans are submitted to the
shareholders for approval."
KMART'S PENSION PLAN FOR NON-EMPLOYEE DIRECTORS FAILS TO ALIGN THE DIRECTORS'
INTERESTS CLOSELY WITH SHAREHOLDERS'.
The Board's plan to replace the current non-employee director retirement
plan with stock unit retirement benefits does not achieve the objective of
eliminating all retirement benefits from the Board's compensation package. We
believe that Proposal #8 presents a superior solution.
8
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Currently, Kmart Directors receive an annual fee of $50,000, 20% of which is
paid in stock. In addition, they earn a retirement benefit of $50,000 per year
for up to ten years if they reach a mandatory retirement age for board service
or serve a total of ten years. We believe that retirement benefits are
appropriate to employees, not to shareholder representatives sitting in an
oversight capacity on corporate boards. In our view the conflicts of interest
are structural and clear: retirement plans encourage loyalty and tenure, not
independence; by their very nature retirement plans do not provide an incentive
for performance when a director is actually serving on the Board, because
benefits are received after Board service is complete. One result of this
-----
system of compensation is that our long-term directors now have healthy pensions
ahead of them if they continue to serve on our Board, but are not provided a
meaningful incentive to take creative and dynamic steps to increase shareholder
value. We do not believe that this kind of compensation system is necessary to
attract to the Kmart Board the caliber of individual that will be required and
that the Company deserves.
SHAREHOLDER OPPOSITION TO DIRECTOR RETIREMENT PLANS HAS GROWN IN RECENT YEARS
AND A NUMBER OF COMPANIES ARE RESPONDING BY ELIMINATING THIS PERQUISITE.
Shareholder opposition has led to the termination of a number of director
retirement plans comparable to Kmart's. This year alone, resolutions requesting
elimination of director retirement plans have been submitted to 50 companies.
In February, the American Express Company, McGraw-Hill Company, Melville
Corporation, Merck & Company and the Woolworth Corporation all announced plans
to terminate their director retirement plans after receiving shareholder
proposals. In addition, the National Association of Corporate Directors Blue
Ribbon Commission on Director Compensation concluded in a report on "best
practices" that "employee-like benefits pose the risk of dependence...director
retirement programs are particularly insidious in this regard."
ELIMINATION OF THEIR RETIREMENT PLAN IS AN OPPORTUNITY FOR BOARD MEMBERS NOW TO
DEMONSTRATE A SPIRIT OF SHARED SACRIFICE WITH OTHER KMART EMPLOYEES.
In April of 1995 most Kmart employees learned that their defined benefit
pension plans would be frozen and, beginning in 1996, would be replaced with a
profit-sharing plan. In light of the Company's recent travails, tying
retirement benefits directly to profitability was a decision which we believe
damaged employee morale. The Board, in determining to maintain in effect its
own retirement plan while downgrading the pensions of Kmart associates, missed
an opportunity to demonstrate the type of unifying leadership which we believe
will be essential to effectuate a turnaround at our Company.
As described above, our Board of Directors has overseen an unprecedented
decline in the value of Kmart stock, accompanied by a staggering loss of market
share. To lead Kmart effectively in the face of the challenges ahead the Board
must break dramatically with practices of the past. The Directors must
demonstrate their willingness to align their interests with shareholders and
employees alike and to establish a compensation structure for themselves which
reflects such a shift.
PLEASE VOTE FOR THIS RESOLUTION.
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9
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Proposal #8 is precatory. In order to implement it, if approved by
shareholders, it would have to be adopted by the Board of Directors.
PROPOSAL #9: TO URGE THE BOARD OF DIRECTORS TO EXAMINE THE FEASIBILITY OF A
----
SALE OR MERGER OF THE COMPANY, OR ANOTHER EXTRAORDINARY
-------------------------------------------------------
INITIATIVE.
----------
The Independent Shareholders' Committee proposes that the shareholders of Kmart
adopt the following resolution:
"RESOLVED, that the shareholders of Kmart Corporation request the
Board of Directors to undertake a systematic study to examine whether
shareholder value could be increased through the sale or merger of the
Company, or another extraordinary corporate initiative, and further
request that the Board prepare a report, at reasonable expense, to be
distributed to shareholders within six months after the Annual Meeting
of Shareholders."
KMART SHOULD EXPLORE THE SALE OR MERGER OF THE COMPANY, OR ANOTHER EXTRAORDINARY
INITIATIVE, BECAUSE IT CONTINUES TO LOSE MARKET SHARE AND ITS LONG-TERM
COMPETITIVE PROSPECTS SEEM POOR.
Under the leadership of our Board of Directors, Kmart's decline from the
leading position in the retail industry has been so pronounced that numerous
financial analysts have publicly contemplated the possibility of a Kmart
bankruptcy. As the chart below indicates, Wal-Mart's market share is now
dominant:
MARKET SHARE OF KMART COMPARED WITH WAL-MART
Kmart Stores Wal-Mart Stores
& Super Ks & Supercenters
Year (excl. food) (excl. food)
- ---- ------------ ---------------
1980 48.5 5.8
1981 47.9 7.3
1982 45.2 9.4
1983 43.4 11.1
1984 42.6 13
1985 39.3 14.8
1986 37.1 17.6
1987 34.6 20.5
1988 32.2 23.5
1989 31.2 27
1990 29.6 30.5
1991 27.9 34.5
1992 25.7 38.5
1993 24.6 42
1994 23.2 44.5
1995 Estimated 22.9 46.1
- ----------------------------------------------------
Source: The New York Times, Fortune, UNITE research
-------
- ----------------------------------------------------
In addition, both Wal-Mart and Target have aggressive capital expansion
plans which we believe will present further direct challenges to Kmart's
existing market share.
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Our Board has, for too long, pursued strategies that have been
unsuccessful. We believe that an intensive analysis of all options, including
creative and dramatic options, are in the best interests of the long-term
viability of Kmart, and the interests of its key constituencies: shareholders,
employees and suppliers. For example, a merger or other corporate transaction
could provide our company with the increased financial and operational resources
which it so urgently needs or enable us to own shares in a business with greater
potential than Kmart alone. Alternatively, an outright sale of the Company
could unlock more present value for shareholders.
Because operational weaknesses, financial limitations and aggressive
competitors confront the Company, we feel that Kmart must be far bolder in its
search for solutions. We do not believe that the Board and Management will
pursue such solutions unless the shareholders are united in urging them to do
so. The Company has suffered too long from the work of a complacent Board. The
new Directors and the recently appointed management team should not settle into
their positions with that same complacency, and should be urged to examine every
strategic avenue available to the Company.
PLEASE VOTE FOR THIS RESOLUTION.
---
Proposal #9 is precatory. In order to implement it, if approved by
shareholders, it would have to be adopted by the Board.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Subject to shareholder ratification, the firm of Price Waterhouse LLP has
been appointed by the Board as independent accountants to audit the Company's
books for fiscal 1996, upon recommendation of the Audit Committee (as defined
and described in Management's 1996 Proxy Statement, incorporated herein by
reference). Representatives of Price Waterhouse LLP 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
shareholders.
VOTING RIGHTS
The Company's Board of Directors has fixed the close of business on March
22 as the record date for determining the shareholders of the Company entitled
to notice of and to vote at the Meeting and any adjournment thereof. As of the
record date, Kmart had outstanding 482,124,711 shares of Common Stock. Each
holder of record of outstanding shares of Common Stock on the record date is
entitled to one vote for each share held on every matter submitted to the
Meeting. The presence of the holders of a majority of the outstanding shares of
Common Stock, represented in person or by proxy and entitled to vote at the
Meeting, will constitute a quorum at the Meeting. Directors are elected by a
plurality of votes cast by holders of Common Stock who are present in person or
represented by proxy and entitled to vote at the Annual Meeting. Adoption of
the proposed resolutions (the "Proposals") will require the affirmative vote of
a majority of the votes cast by holders of Common Stock who are present in
person or represented by proxy and entitled to vote at the Annual Meeting.
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
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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 the Proposals, 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.
REVOCATION RIGHTS
A shareholder who executes the enclosed proxy may revoke it at any time
before it is exercised. An executed proxy may be revoked either by a later
dated proxy with respect to the same matters, by giving notice of revocation to
the Secretary of the Company, or by voting in person at the Meeting. Proper
execution of the Independent Shareholders' enclosed proxy will revoke a
previously executed proxy delivered to the Company. If the proxy is not
revoked, it will be voted by those herein named as you direct on the proxy.
UNMARKED PROXIES AND OTHER BUSINESS
If you sign and return to us your BLUE proxy, your shares will be voted in
accordance with your instructions. If no instructions are given for any matter,
your shares will be voted as follows: for each of Management's nominees; for
Proposals Nos. 2, 4, and 6; against Proposals Nos. 3 and 5; and for the three
Independent Shareholders' resolutions (Proposals Nos. 7, 8 and 9) described
above.
Except as set forth above, the Independent Shareholders' Committee is not
aware of any proposals to be brought before the Annual Meeting. Should any
other proposal be brought before the Annual Meeting, the vote required for
approval of such proposal would be as prescribed by the Company's charter or
bylaws or by applicable law. Should other proposals be brought before the
Annual Meeting, the persons named on the BLUE proxy will abstain from voting on
such proposals unless such proposals adversely affect the interests of the
Independent Shareholders' Committee as determined by the Independent
Shareholders' Committee in its sole discretion, in which event such persons will
vote on such proposals at their discretion.
SOLICITATION OF PROXIES
The Independent Shareholders' Committee expects to solicit proxies through
the mail, as well as by telephone and through personal interviews. The
Independent Shareholders' Committee will also request brokers, custodians and
other nominees to forward solicitation materials to the beneficial owners of
Common Stock, and such persons will be reimbursed for their reasonable out-of-
pocket expenses. Proxies may be solicited personally and by telephone by
employees of UNITE and IBT, none of whom will receive additional compensation
for such solicitation. The Independent Shareholders have also engaged Garland
Associates, Inc. as special employees to solicit shareholders. Garland will
advise the Committee and assist in preparation and distribution of proxy
materials as well as the solicitation of proxies for an anticipated cost of
$7,500.00
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The cost of the solicitation will be borne solely by the Independent
Shareholders. While the exact cost of the solicitation is not at this time
known, the Independent Shareholders do not expect it to exceed $50,000. Total
expenditures to date, including printing and postage expenses, have been $5,000.
Reimbursement for the cost of this solicitation will not be sought from Kmart.
INFORMATION CONCERNING THE
INDEPENDENT SHAREHOLDERS' COMMITTEE
The Kmart Independent Shareholders' Committee (the "Committee") has been
formed by the Union of Needletrades, Industrial and Textile Employees ("UNITE")
and the International Brotherhood of Teamsters ("IBT") for the purpose of this
solicitation.
UNITE and IBT are the record holders of 100 and 290 shares, respectively,
of Kmart Common Stock. IBT purchased its shares on February 28, 1996. Pension
trusts (the "UNITE Pension Trusts") organized for the retirement benefit of
members of UNITE, a labor organization headquartered in New York, New York, are
the holders of approximately 20,000 shares of Kmart Common Stock. Pension
Trusts (the "IBT Pension Trusts" and, together with the UNITE Pension Trusts,
the "Pension Trusts") organized for the retirement benefit of members of IBT, a
labor organization headquartered in Washington, D.C., are the holders of in
excess of 500,000 shares of Kmart Common Stock. The Pension Trusts are not
participants in this solicitation, have not been solicitated and therefore, have
not yet indicated how they will vote their shares.
Approximately 2,000 Kmart employees at six facilities located in
California, Texas, Ohio, New Jersey, Georgia and Illinois are covered by
collective bargaining agreements between UNITE and the Company. UNITE is also
the certified collective bargaining representative at a Kmart facility in
Greensboro, NC. The Company and UNITE are currently negotiating a collective
bargaining agreement for that facility. A majority of the workers at a Kmart
facility in Manteno, IL voted to be represented by the IBT in 1993. The status
of that election is being adjudicated before the National Labor Relations Board.
The following employees of UNITE and IBT may be deemed to be "participants"
in this solicitation under Item 4 of Reg. 240.14a-101 of the Proxy Rules:
Michael R. Zucker, Director of Corporate and Financial Affairs of UNITE, and
Hilary Johnson, Project Manager at UNITE, at 2100 L Street, N.W., Washington,
D.C. 20037; and William Patterson, Director of Corporate Affairs of IBT, and
Bartlett Naylor, Economist at IBT, at 25 Louisiana Avenue, N.W., Washington,
D.C. 20001. Mr. Patterson is the record owner of 6 shares of Common Stock of
the Company. Mr. Naylor is the beneficial owner of 200 shares of Common Stock
of the Company held in street name.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL HOLDERS
Based on the information set forth in Management's 1996 Proxy Statement at
page 4 (incorporated herein by reference), as of March 7, 1996 the Company's
directors and executive officers beneficially owned, as a group, approximately
1,804,483 shares, or less than 1%, of the Company's outstanding Common Stock.
That number includes shares that the individuals within that group have a right
to acquire ownership of within 60 days after March 7, 1996 through the
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exercise of options under the Company's stock option plans. That number does not
include 18,759,571 shares with respect to which James O. Welch, Jr. disclaims
beneficial ownership.
Management' s 1996 Proxy Statement at page 2 (incorporated herein by
reference) states that to the Company's knowledge, no person beneficially owns
5% or more of the Company's outstanding shares of Common Stock.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the next Annual
Meeting must be received by the Secretary, Kmart Corporation, 3100 West Big
Beaver Road, Troy, Michigan 48084-3163 on or before December 13, 1996 to be
considered for inclusion by the Company 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 shareholders must provide to the
Secretary of the Company for any matter to be properly presented at a
shareholders meeting. The Independent Shareholders urge all qualified
shareholders to submit their resolutions to Management.
The Kmart Independent Shareholders' Committee, UNITE and IBT assume no
responsibility for the accuracy or completeness of any information contained
herein which is based on, or incorporated by reference to, Management's Proxy
Statement or Kmart public filings.
KMART INDEPENDENT
SHAREHOLDERS' COMMITTEE
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED BLUE PROXY CARD PROMPTLY AND
MAIL IT IN THE POSTAGE PRE-PAID ENVELOPE PROVIDED HEREWITH.
If your shares are held in the name of a broker, bank or nominee, only it
can sign a proxy card and only upon receipt of your specific instructions to do
so. Accordingly, please contact the person responsible for your account and
give him or her appropriate instructions to execute the blue proxy card.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN VOTING YOUR SHARES, PLEASE
CALL KMART INDEPENDENT SHAREHOLDERS COMMITTEE AT (800) 292-1421.
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<PAGE>
KMART CORPORATION
1996 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE
The undersigned shareholder of Kmart Corporation hereby appoints each of
Michael R. Zucker and William Patterson, and each of them with full power of
substitution, for and in the name of the undersigned, to represent and to vote,
as designated below, all shares of Common Stock of Kmart Corporation that the
undersigned is entitled to vote if personally present at the 1996 Annual Meeting
of Shareholders of Kmart Corporation, to be held on May 21, 1996 at the Fisher
Theater, located in the Fisher Building, 3011 West Grand Boulevard, Detroit,
Michigan, at 10 a.m. (local time) and at any adjournment, postponement or
rescheduling thereof. The undersigned hereby revokes any previous proxies with
respect to the matters covered by this Proxy.
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE RECOMMENDS A VOTE FOR EACH OF
ITEMS 1, 2, 4, 6, 7, 8 AND 9 AND AGAINST EACH OF ITEMS 3 AND 5 SET FORTH BELOW.
Proposal 1: Election of Directors:
(a) Company Nominees:
The Kmart Independent Shareholders' Committee intends to use
this proxy to vote for persons who have been nominated by Kmart
Corporation to serve as directors. You may withhold authority to
vote for one or more Company nominees by writing the name of
such nominee(s) below. You should refer to the proxy statement
and form of proxy distributed by the Company for the names,
background, qualifications and other information concerning the
Company's nominees.
Proposal 2: To amend the Company's Directors' Stock Plan regarding non-
employee directors' stock compensation.
Proposal 3: To amend the Company's 1992 Stock Option Plan regarding the
authority of the Compensation and Incentives Committee.
Proposal 4: To ratify the appointment of Price Waterhouse as independent
accountants of the Company for the 1996 fiscal year.
Proposal 5: To act upon a stockholder proposal, if presented at the meeting,
to request adoption of a stock option plan whereby certain
awards are contingent upon stock price increases.
Proposal 6: To act upon a stockholder proposal, if presented at the meeting,
to request adoption of cumulative voting.
Proposal 7: To act upon a stockholder proposal, if presented at the meeting
by the Kmart Independent Shareholders' Committee, to request
elimination of the classification of the Board of Directors.
15
<PAGE>
Proposal 8: To act upon a stockholder proposal, if presented at the meeting
by the Kmart Independent Shareholders' Committee, to request
elimination of the current retirement plan for non-employee
directors.
Proposal 9: To act upon a stockholder proposal, if presented at the meeting
by the Kmart Independent of Shareholders' Committee, to request
the Board to undertake a feasibility study of a sale or merger
of Kmart and other extraordinary initiatives.
(SEE REVERSE SIDE FOR INSTRUCTIONS)
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<PAGE>
/x/ PLEASE MARK VOTES AS IN THIS EXAMPLE
Kmart Independent Shareholders' Committee recommends a vote
FOR Proposals 1, 2, 4, 6, 7, 8 and 9 and AGAINST Proposals 3 and 5.
1. Election of Directors: FOR AGAINST ABSTAIN
Proposal 2 / / / / / /
Proposal 3 / / / / / /
Proposal 4 / / / / / /
FOR ALL WITHHOLD FOR ALL Proposal 5 / / / / / /
/ / / / Proposal 6 / / / / / /
Proposal 7 / / / / / /
Proposal 8 / / / / / /
Proposal 9 / / / / / /
__________________ __________________
__________________ __________________
__________________ __________________
If you do not want 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 1,2,4,6,7,8 AND 9 AND VOTED AGAINST PROPOSALS 3 AND
5 AS SET FORTH IN THE PROXY STATEMENT.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
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<PAGE>
This Proxy, when properly executed, will be voted in the manner marked herein
by the undersigned shareholder. Reg. (S)240.14a-4(d)(iv) of the Proxy Rules
requires the following statement on this card: There is no assurance that the
registrant's nominees will serve if elected with any of the soliciting party's
nominees.
Please date and sign this proxy exactly
as your name appears hereon:
Dated: ______________________, 1996
_____________________________
(Signature)
_____________________________
(Signature, if held jointly)
_____________________________
(Title)
When shares are held by joint tenants,
both should sign. When signing as
attorney-in-fact, executor,
administrator, trustee, guardian,
corporate officer or partner, please
give full title as such. If a
corporation, please sign in corporate
name by President or other authorized
officer. If a partnership, please sign
in partnership name by authorized
person.
To vote in accordance with the Kmart Independent Shareholders' Committee
recommendation, just sign and date this proxy; no boxes need to be checked.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE PROVIDED.
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