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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] 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)
Payment of Filing Fee (Check the appropriate box):
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Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3).
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1) Title of each class of securities to which transaction applies: .....
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Date Filed: .........................................................
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PRELIMINARY COPIES
Kmart Independent Shareholders' Committee
2100 L Street, NW
Washington, DC 20019
Suite 210
PROXY STATEMENT
OF
KMART INDEPENDENT SHAREHOLDERS' COMMITTEE
IN CONNECTION WITH THE
1996 ANNUAL MEETING OF SHAREHOLDERS
OF THE KMART CORPORATION
April __, 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 [Hyatt Regency, Dearborn, Michigan at 9:00 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 __, 1996.
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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 67%, from a high of
$28.12 to $9.25 as of March 25, 1996.
A majority of the current Directors who oversaw 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:
[chart here: Board Members Presiding over Kmart as Stock Performance
Plummets]
Prices in U.S. dollars
Adjusted for stock dividends and stock splits as of 3/22/96
Monthly prices 1/01/92 to 3/22/96
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
3/22/96* 126916000 11 7 1/8 9 7/8
* Partial period data
# Close from earlier in period
Issue.
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We believe a Board of Directors which is truly independent of Management is
necessary if Kmart is to successfully turn itself around. Time is growing
short. As shareholders we have the opportunity this year to send a powerful
mandate to the Board to act decisively to increase shareholder value by changing
its composition and its level of accountability.
To this end we propose the following:
1. Electing Stephen Hester, an independent nominee, to serve on our Board. A
Harvard-educated lawyer and former partner at the law firm of Arnold & Porter,
Mr. Hester has helped design turnarounds at numerous corporations.
2. Holding annual board elections for all directors through the elimination of
classified director terms.
3. Eliminating the non-employee directors' retirement plan.
4. 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 [six] of the [seven] nominees 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
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INFORMATION CONCERNING THE
INDEPENDENT SHAREHOLDERS' COMMITTEE
The Kmart Independent Shareholders' 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.
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.
UNITE is also the certified collective bargaining representative for less than
1% of Kmart's 270,000 employees. 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 following employees of UNITE and IBT may be deemed to be
"participants" in this solicitation under Item 4 of Reg. Sec. 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 at
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.
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 _________ shares of Common Stock and
_________ shares of Series C Preferred Stock. Each holder of record of
outstanding shares of Common Stock and each holder of record of outstanding
shares of Series C Preferred 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 and Series C
Preferred 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 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
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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 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 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 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.
If you do not specifically instruct us otherwise, your shares will be voted
for Stephen Hester as Director, and for James B. Adamson, Floyd Hall, Robert D.
Kennedy, Lawrence Perlman, William P. Weber and James O. Welch, Jr. as
Directors, for the appointment by the Board of Directors of Price Waterhouse as
the Company's independent accountants and for the three Independent
Shareholders' resolutions described below.
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ELECTION OF DIRECTORS
The Independent Shareholders' Committee proposes that Kmart shareholders elect
the following nominees as Directors of Kmart at the Meeting:
Stephen L. Hester
James B. Adamson
Floyd Hall
Robert D. Kennedy
Lawrence Perlman
William P. Weber
James O. Welch, Jr.
STEPHEN HESTER: THE INDEPENDENT SHAREHOLDERS' CANDIDATE FOR THE BOARD OF
DIRECTORS
We have nominated Stephen Hester to serve on the Board of Directors of the
Kmart Corporation, because we believe that Kmart needs an effective independent
voice on the Board at this time. We also believe that Mr. Hester is such an
independent candidate, who is not affiliated with (and does not have the support
of) Kmart Management or the Board of Directors. We have nominated Mr. Hester
because of his experience in structuring complex financial transactions, his
previous service on public and private corporate boards of directors (including
the board of Northwestern Steel and Wire Company, from 1988 to 1992), and his
commitment to increasing shareholder value through employee involvement.
Mr. Hester, age 59, is a principal, senior partner of and General Counsel
to American Capital Strategies Ltd., an investment banking firm specializing in
corporate restructurings and employee ownership, located at 3 Bethesda Metro
Center, Bethesda, MD 20814. He is currently the trustee of a trust under the
$1.2 billion Northwest Airlines Employee Stock Plan which he helped to
establish. Mr. Hester and American Capital Strategies have structured and
financed employee stock ownership transactions in companies employing UNITE
members, and have provided corporate financial advisory
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services to UNITE and to the IBT, including providing advice to the IBT in
connection with the Northwest Airlines employee stock ownership transaction.
Previously, Mr. Hester was a partner at the law firm of Arnold & Porter for 21
years. He has structured well over $1 billion worth of financial transactions,
and has provided advice in connection with significant employee stock ownership
transactions, including that involving U.S. News & World Report. He has also
advised Avis on the operation of its employee stock ownership plan. Mr. Hester
was an editor of the law review at Harvard University and has taught at Duke
University Law School and Georgetown University Law Center.
Mr. Hester is the beneficial owner of 1,000 shares of Common Stock of the
Company, purchased on February 9, 1996 and held in street name.
Pages _______ of Management's 1996 Proxy Statement (incorporated herein by
reference) set forth the names and ages of the remainder of the above-mentioned
nominees and describes the principal business experience of each, as well as the
year each first held Company office and/or served as a director, the number of
shares each beneficially owns and the percentage of outstanding shares owned by
each nominee. Information is also provided concerning the committees of the
Board.
GLORIA SHATTO AND OTHER LONG-TERM DIRECTORS OF THE COMPANY SHOULD NOT BE RE-
ELECTED WHEN THEIR TERMS EXPIRE.
Ms. Shatto has been a director at Kmart since 1983, serving on the Board
throughout a period of dramatic decline for our Company. According to
Management's 1995 Proxy Statement, as of March 3, 1995 Ms. Shatto owned only
3,113 shares, worth less than $20,000 at the close of fiscal 1995, after twelve
years of service. She will receive pension benefits of over twenty times that
amount, or $500,000, upon her retirement. The eight directors who have sat on
Kmart's Board since at least 1990 have 82 years of combined service.
Distressingly, the aggregate total investment in the Company for these long-time
Board
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members as of March 3, 1995 was, according to Management's 1995 Proxy Statement,
only 37,022 shares, valued at $217,690 at the close of fiscal 1995.
Ms. Shatto sits on the Board of four other corporations, and in the
aggregate Kmart's eight directors who have served six years or more on the Board
sat on a total of 38 other Boards. We think the annual board retainer fee is
substantial enough to recruit a less distracted cadre of directors.
VOTING PROCEDURES
Unless otherwise directed on the proxy card as more fully described below,
we will vote FOR Mr. Hester and FOR the remainder of the above-mentioned
nominees (the "Recent Member Nominees"), who are all recent members of the Board
and who therefore do not share responsibility for Kmart's past performance. We
will, however, not vote for Gloria M. Shatto.
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 Mr. Hester and each of the Recent Member Nominees as Directors of
the Company or withhold authority to vote for the election of Mr. Hester and all
the Recent Member Nominees by marking the proper box on the BLUE Annual Meeting
proxy card. You may also withhold your vote from Mr. Hester and/or any one or
more of the Recent Member Nominees by writing the name of such nominee(s) in the
space provided on the BLUE Annual Meeting proxy card. As required by Reg.
Sec.240.14a-4(d)(iv) of the Proxy Rules, we hereby state that there is no
assurance that the registrant's nominees will serve if elected with any of the
soliciting party's nominees. However, we have no reason to believe that they
will not serve. IF NO MARKING IS MADE, YOU WILL BE DEEMED TO HAVE GIVEN A
DIRECTION TO VOTE THE SHARES REPRESENTED BY THE BLUE PROXY CARD FOR THE
ELECTION OF MR. HESTER AND ALL OF THE RECENT MEMBER NOMINEES PROVIDED THAT YOU
HAVE SIGNED AND DATED THE PROXY CARD.
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RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Subject to shareholder ratification, the firm of Price Waterhouse 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 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.
RESOLUTIONS PROPOSED BY THE INDEPENDENT SHAREHOLDERS
1. PROPOSAL 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 59% of all
votes cast, but the Board failed to take action to implement the proposal. In
our view, this non-responsiveness on the part of the Board underscores the
degree to which this classified Board has become distanced from the legitimate
concerns and interests of the shareholders.
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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
earnings were lower than its earnings for the corresponding quarter of the
previous year.
PERFORMANCE GRAPH
Set forth below is a graph taken from Management's 1995 Proxy Statement
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
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
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 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 above illustrates, the
Company has consistently performed well below its peers in the retail industry.
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,
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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 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 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 (Sections 450.1790 et seq. of the Michigan Business Corporation 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
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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.
---
2. PROPOSAL 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'.
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
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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
impaired 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.
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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.
---
3. PROPOSAL 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
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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.
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.
---
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
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<PAGE>
will receive additional compensation for such solicitation. The Independent
Shareholders may also engage special employees to solicit shareholders.
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 $25,000. 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.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL HOLDERS
Based on the information set forth in Management's 1996 Proxy Statement at
page __ (incorporated herein by reference), as of __________, 1996 the Company's
directors and executive officers beneficially owned, as a group, approximately
_______ shares, or __%, of the Company's outstanding Common Stock. [Class C
Preferred Shares?] That number includes shares that the individuals within that
group have a right to acquire ownership of within 60 days after ______, 1996
through the exercise of options under the Company's stock option plans. [That
number does not include ________ shares with respect to which the Chairman of
the Board and Director of Kmart disclaims beneficial ownership.]
Management' s 1996 Proxy Statement (incorporated herein by reference)
[states on page __ that to the Company's knowledge, no person beneficially owns
5% or more of the Company's outstanding shares of Common Stock, and] lists each
person who, as of ________, 1996, was known to the Company to be the beneficial
owner of 5% or more of the Company's outstanding shares of Series C Preferred
Stock, along with the amount and nature of the beneficial ownership and other
related information.
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<PAGE>
OTHER MATTERS
Kmart's directors are soliciting proxies for election of directors, for an
amendment to [insert as applicable].
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. The Independent Shareholders urge all
qualified shareholders to submit their resolutions to Management.
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 [ PHONE NO.].
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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 and Series C Preferred 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 Hyatt Regency, Dearborn, Michigan, 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, 3, 4 AND 5 SET FORTH BELOW.
(Please mark with an "X" in the appropriate boxes)
1. ELECTION OF DIRECTORS: Election of James B. Adamson, Floyd Hall, Stephen L.
Hester, Robert D. Kennedy, Lawrence Perlman, William P. Weber and James O.
Welch, Jr.
[_] FOR all nominees ex- [_] WITHHOLD AUTHORITY
cept as marked below for all nominees
(INSTRUCTION: To withhold authority to vote for one or more nominees, mark FOR
above and print the names(s) of the person(s) with respect to whom you wish to
withhold authority in the space provided below.)
________________________________________________________________________________
2. Approval of proposal to approve Price Waterhouse as Independent Auditors.
For Against Abstain
[_] [_] [_]
3. Approval of proposal to declassify the Board of Directors.
For Against Abstain
[_] [_] [_]
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4. Approval of proposal to eliminate the current Director Retirement Plan.
For Against Abstain
[_] [_] [_]
5. Approval of proposal to urge the Board of Directors to examine the
feasibility of a sale or merger of the Company, or another extraordinary
initiative.
For Against Abstain
[_] [_] [_]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
(continued on the reverse side)
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<PAGE>
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned shareholder. Reg. Sec.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. IF NO MARKING IS MADE, THIS "PROXY" WILL BE VOTED "FOR" ALL
OF THE NOMINEES LISTED ABOVE, "FOR" THE PROPOSAL TO APPROVE PRICE WATERHOUSE AS
INDEPENDENT AUDITORS, "FOR" THE PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS,
"FOR" THE PROPOSAL TO ELIMINATE THE CURRENT DIRECTOR RETIREMENT PLAN AND "FOR"
THE PROPOSAL TO URGE THE BOARD OF DIRECTORS TO EXAMINE THE FEASIBILITY OF A
SALE OR MERGER OF THE COMPANY, OR ANOTHER EXTRAORDINARY INITIATIVE.
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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