<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant / /
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
/ / Preliminary Revised Materials 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, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/ / $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.
/X/ $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 transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
KMART CORPORATION
INTERNATIONAL HEADQUARTERS
TROY, MICHIGAN 48084
April 16, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Kmart Corporation on Tuesday, May 21, 1996. The meeting will be held at the
Fisher Theater, located in the Fisher Building, 3011 West Grand Boulevard,
Detroit, Michigan and will begin at 10:00 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,
FLOYD HALL
Floyd Hall
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
KMART CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1996
TO THE STOCKHOLDERS OF
KMART CORPORATION
The Annual Meeting of Stockholders of Kmart Corporation (the "Company")
will be held at the Fisher Theater, located in the Fisher Building, 3011 West
Grand Boulevard, Detroit, Michigan on Tuesday, the 21st day of May, 1996 at
10:00 A.M., local time, for the following purposes:
1. To elect five Class I directors for a term expiring in 1999 and to
elect one Class II director for a term expiring in 1997, as set forth in
the accompanying Proxy Statement.
2. To act upon a proposal to amend the Company's Directors Stock Plan
regarding non-employee directors' stock compensation.
3. To act upon a proposal to amend the Company's 1992 Stock Option
Plan regarding the authority of the Compensation and Incentives Committee
to determine post-employment exercise period and size of awards.
4. To ratify the appointment of Price Waterhouse LLP as independent
accountants of the Company for the 1996 fiscal year.
5-9. To act upon five stockholder proposals, if presented at the
meeting, as set forth in the accompanying Proxy Statement, concerning:
vesting of stock options; cumulative voting; declassification of the Board
of Directors; retirement plan for non-employee directors; and conduct of a
feasability study. All of these stockholder proposals are opposed by the
Board of Directors.
10. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record of Kmart common stock at the close of business on
March 22, 1996 will be entitled to notice of and to vote at the meeting or any
adjournment thereof.
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 common stock 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.
Your admission ticket to the Annual Meeting and parking voucher are included
with the proxy materials.
By order of the Board of Directors
NANCIE LADUKE
Nancie W. LaDuke
Vice President and Secretary
Troy, Michigan
April 16, 1996
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND PROMPTLY
MAIL YOUR ENCLOSED WHITE PROXY CARD. STOCKHOLDERS WITH QUESTIONS OR REQUIRING
ASSISTANCE MAY CALL D.F. KING & CO., INC., WHICH IS ASSISTING THE COMPANY,
TOLL-FREE AT (800) 714-3310.
<PAGE> 4
KMART CORPORATION
PROXY STATEMENT
------------------------------
GENERAL INFORMATION
April 16, 1996
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 21, 1996, at 10:00 A.M., local time, at
the Fisher Theater, located in the Fisher Building, 3011 West Grand Boulevard,
Detroit, 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. 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, 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, 4, 5, 6, 7, 8 and 9, 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,
including a contested proxy solicitation, how a stockholder voted will not be
disclosed to the Company prior to final tabulation of the vote.
The voting securities of the Company consist of common stock, par value
$1.00 per share ("Common Stock"). At the close of business on March 22, 1996,
the record date for the Annual Meeting, there were 482,124,711 shares of Common
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 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 Retirement 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 D.F. King & Co., Inc. to assist in the distribution of
proxy solicitation materials. It is anticipated that approximately 60 persons
will be used by D.F. King & Co., Inc. in its solicitation efforts. Total
expenditures for the solicitation of proxies (including fees of attorneys,
accountants, public relations or financial advisors, solicitors, printing,
transportation and other costs incidental to the solicitation) are estimated to
be $50,000, and total cash expenditures to date have been approximately $10,000.
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.
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 thirteen, as of
May 21, 1996. 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 James B. Adamson, Stephen F. Bollenbach, Floyd Hall, Robert
D. Kennedy and William P. Weber for election as Class I directors for a term
expiring at the 1999 annual meeting, and James O. Welch, Jr. for election as a
Class II director for a term expiring at the 1997 annual meeting, and in each
case until their successors are elected and qualified. All of the nominees are
presently directors of the Company who were elected by the Board of Directors
since the last annual meeting of stockholders and whose terms expire at the 1996
Annual Meeting. Other directors who are remaining on the Board will continue in
office in accordance with their previous elections by stockholders until the
expiration of their terms at the 1997 or 1998 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 the 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. The Board is unaware of any
need for substitute nominees.
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 MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
ADAMSON, BOLLENBACH, HALL, KENNEDY AND WEBER AS CLASS I DIRECTORS AND MR. WELCH
AS A CLASS II DIRECTOR 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.
JAMES B. ADAMSON, 48 (Nominee -- Term to expire in 1999)
Chairman and Chief Executive Officer, Flagstar Companies, Inc. (food services
and restaurant franchises). Previously served as Chief Executive Officer, Chief
Operating Officer and Retail President, respectively, of Burger King Corporation
and Executive Vice President, Marketing of Revco Drug Stores. Director of Oxford
Health Plans and New World Coffee, Inc. Has served as a director of Kmart
Corporation since March 19, 1996.
LILYAN H. AFFINITO, 64 (Incumbent -- 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).
Director of Caterpillar, Inc., Chrysler Corporation, Jostens Inc., Lillian
Vernon Corporation, New England Telephone Company and New York Telephone
2
<PAGE> 6
Company (subsidiaries of Nynex Corporation) and Tambrands, Inc. Has served as a
director of Kmart Corporation since 1990. Member of Audit and Executive/Finance
Committees.
STEPHEN F. BOLLENBACH, 53 (Nominee -- Term to expire in 1999)
President and Chief Executive Officer of Hilton Hotels Corporation. Previously
served as Senior Executive Vice President and Chief Financial Officer of The
Walt Disney Company, as President and Chief Executive Officer of Host Marriott
Corporation and as Chief Financial Officer of the Trump Organization. Director
of America West Airlines, Inc. Election as a director of Kmart Corporation will
be effective April 16, 1996.
JOSEPH A. CALIFANO, JR., 64 (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 and Nominating Committees.
RICHARD G. CLINE, 61 (Incumbent -- Term to expire in 1998)
Chairman, Hawthorne Investors, Inc. (management advisors and personal
investments). Former 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. Director of Whitman
Corporation. Has served as a director of Kmart Corporation since 1995. Member of
Compensation and Incentives and Executive/Finance Committees.
WILLIE D. DAVIS, 61 (Incumbent -- 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, Strong Funds and
WICOR, Inc. Has served as a director of Kmart Corporation since 1986. Member of
Compensation and Incentives and Nominating Committees.
ENRIQUE C. FALLA, 56 (Incumbent -- Term to expire in 1997)
Executive Vice President of The Dow Chemical Company. Previously served as
Executive Vice President and Chief Financial Officer of The Dow Chemical
Company. Director of The Dow Chemical Company and Guidant Corporation. Has
served as a director of Kmart Corporation since 1992. Member of Audit and
Executive/Finance Committees.
JOSEPH P. FLANNERY, 64 (Incumbent -- Term to expire in 1998)
Chairman of the Board, President and Chief Executive Officer of Uniroyal
Holding, Inc. (investment management company). Director 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 Nominating and Executive/Finance Committees.
FLOYD HALL, 57 (Nominee -- Term to expire in 1999)
Chairman of the Board, President and Chief Executive Officer. Previously served
as Chairman and Chief Executive Officer of Alva Reproductions Inc. (museum
reproductions), Glass Masters Inc. (stained glass products) and The Museum Co.
(retail stores) and as Chairman of Lynx Technologies Inc. (telecommunications).
Prior to that, served as Chairman and Chief Executive Officer of The Grand Union
Company, Target Stores and B. Dalton Booksellers Inc. Director of Jundt Growth
Fund and Jundt Emerging Growth Fund. Has served as a director of Kmart
Corporation since June 4, 1995. Member of Executive/Finance Committee.
3
<PAGE> 7
ROBERT D. KENNEDY, 63 (Nominee -- Term to expire in 1999)
Retired Chairman of the Board and Chief Executive Officer of Union Carbide
Corporation (chemicals and plastics manufacturer). Director of Sun Oil Co.,
Union Carbide Corporation, Union Camp Corporation and UCAR International Inc.
Has served as a director of Kmart Corporation since March 19, 1996.
J. RICHARD MUNRO, 65 (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 and
Nominating Committees.
WILLIAM P. WEBER, 55 (Nominee -- Term to expire in 1999)
Vice Chairman of Texas Instruments Incorporated (diversified electronics
manufacturer). Previously served as Executive Vice President, Components Sector
President of Texas Instruments Corporation. Director of Texas Instruments
Corporation. Has served as a director of Kmart Corporation since March 19, 1996.
JAMES O. WELCH, JR., 64 (Nominee -- Term to expire in 1997)
Former Vice Chairman of RJR Nabisco, Inc. and Chairman of Nabisco Brands, Inc.
Director of TECO Energy, Inc. and Vanguard Group of Investment Companies. Has
served as a director of Kmart Corporation since July 18, 1995. Member of Audit
and Compensation and Incentives Committees.
STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares 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 7, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
OF COMMON
NAME SHARES STOCK
- ------------------------------------------------------------ --------- ------------
<S> <C> <C>
James B. Adamson(1)......................................... 1,000 *
Lilyan H. Affinito.......................................... 9,196 *
Stephen F. Bollenbach(1).................................... 10,000 *
Joseph A. Califano, Jr. .................................... 4,654 *
Richard G. Cline............................................ 10,634 *
Willie D. Davis............................................. 4,586 *
Enrique C. Falla............................................ 4,366 *
Joseph P. Flannery.......................................... 6,056 *
Ronald J. Floto............................................. 3,386 *
Floyd Hall.................................................. 663,934 *
David B. Harper(2).......................................... 3,654 *
Donald W. Keeble(3)......................................... 78,439 *
Robert D. Kennedy(1)........................................ 10,000 *
F. James McDonald(2)........................................ 12,206 *
J. Richard Munro............................................ 7,145 *
Lawrence Perlman(2)......................................... 3,634 *
Marvin P. Rich.............................................. 17,092 *
Gloria M. Shatto(2)......................................... 4,586 *
Thomas W. Watkins(3)........................................ 238,993 *
William P. Weber(1)......................................... 3,000 *
James O. Welch, Jr.(4)(5)................................... 133,522 *
Directors and executive officers as a group (50
persons)(1)-(5)........................................... 2,208,017 *
</TABLE>
- -------------------------
* Less than 1%.
4
<PAGE> 8
(1) Stock ownership of directors who joined the Board of Directors after March
7, 1996 is as of the date of their election to the Board.
(2) Director's term of office will expire as of the date of the 1996 Annual
Meeting.
(3) Includes shares of Common Stock that can be acquired by exercise of stock
options within 60 days of March 7, 1996 as follows: Mr. Keeble -- 61,500
shares; Mr. Watkins -- 205,400 shares; and all directors and executive
officers as a group -- 977,934 shares.
(4) Mr. Welch shares voting and investment power as to 18,759,571 shares of
Common Stock, owned by one or more of the Vanguard Group of Investment
Companies of which he is a director. If such additional shares were
included, executive officers and directors as a group would be considered to
beneficially own 20,967,951 shares, or 0.043%, of Common Stock, including
0.039% for Mr. Welch. Mr. Welch disclaims beneficial ownership of such
shares.
(5) Includes 86,000 shares of Common Stock held by trusts of which Mr. Welch or
his wife is a co-trustee.
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 31, 1996, and a brief description of the
functions performed by each committee.
AUDIT COMMITTEE
Members: Lilyan H. Affinito (Chair), Enrique C. Falla, David B. Harper,
Lawrence Perlman, Gloria M. Shatto and James O. Welch, Jr. This Committee is
comprised solely of non-employee directors.
Number of Meetings: 7
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 corporate and
reporting practices of the Company.
COMPENSATION AND INCENTIVES COMMITTEE
Members: F. James McDonald (Chair), Joseph A. Califano, Jr., Richard G.
Cline, Willie D. Davis, J. Richard Munro and James O. Welch, Jr. This Committee
is comprised solely of non-employee directors.
Number of Meetings: 11
Functions: Determining the nature and amount of compensation of all
executive officers of the Company and its subsidiaries; and administering the
Company's Stock Option, Performance Restricted Stock, Annual Incentive Bonus,
Management Stock Purchase and Directors Stock Plans. This Committee is assisted
as needed by an independent consultant which reports directly to the Committee.
EXECUTIVE/FINANCE COMMITTEE
Members: Lilyan H. Affinito, Richard G. Cline, Enrique C. Falla, Joseph P.
Flannery, Floyd Hall and David B. Harper.
Number of Meetings: 4
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 and
overseeing corporate operating and financial policies, procedures and plans;
making recommendations to the Board on dividend policy, corporate financing, the
issuance and sale of Company securities and the investment of funds; and
reviewing and overseeing the Employee Pension Plan and Pension Fund and the
Retirement Savings Plan/Profit Sharing Program and Funds.
5
<PAGE> 9
NOMINATING COMMITTEE
Members: J. Richard Munro (Chair), Joseph A. Califano, Jr., Willie D.
Davis, Joseph P. Flannery, F. James McDonald, Lawrence Perlman and Gloria M.
Shatto. This Committee is comprised solely of non-employee directors.
Number of Meetings: 9
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.
There were 18 meetings of the Board during the fiscal year ended January
31, 1996. Each director attended at least 75% 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 served as non-executive
Chairman of the Board from January 17 to June 4, 1995 and retired from the Board
as of December 31, 1995, received an additional stipend of $209,680. Twenty
percent (and at the election of the director, up to 50%) of the annual retainer,
as well as Mr. Perkins' stipend, was paid in Common Stock in lieu of cash
pursuant to the Directors Stock Plan in 1995.
Under the Company's Deferred Compensation Plan for Non-Employee Directors
and the 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 any dividends
payable on such shares, which are converted on a quarterly basis to additional
shares.
Effective January 1, 1996, the Board of Directors approved terminating
benefits to new directors and freezing the accrual of future benefits to
existing directors under the Directors Retirement Plan, subject to approval of
stockholders of Proposal 2 herein. Until December 31, 1995, under the Company's
Directors Retirement Plan, non-employee directors who served on the Board (i)
until they 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 70), or (ii) at least 10 years, upon retirement from the
Board or age 65, whichever was later, received an annual benefit equal to the
annual retainer at the time of retirement. The benefit was 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 benefits.
6
<PAGE> 10
COMPENSATION OF OFFICERS
SUMMARY COMPENSATION TABLE. The following table sets forth information
regarding the compensation for services in all capacities to the Company in
fiscal years 1993, 1994 and 1995 of (i) the Chief Executive Officer as of
January 31, 1996, (ii) each of the other four most highly compensated executive
officers of the Company as of January 31, 1996 and (iii) one individual who
served as the Chief Executive Officer until March 21, 1995.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------------
ANNUAL COMPENSATION SECURITIES RESTRICTED
NAME AND ------------------------------ UNDERLYING SHARE ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) AWARDS($) COMPENSATION($)(4)(5)
- ---------------------------- ---- --------- ---------- ---------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
F. Hall..................... 1995 $ 660,300 $1,000,000(2) 3,450,000 $6,375,000(3) -0-
Chairman of the Board, 1994 -0- -0- -0- -0- -0-
President and Chief 1993 -0- -0- -0- -0- -0-
Executive Officer(1)
R. J. Floto................. 1995 500,000 103,280(6) 140,000 -0- -0-
Executive Vice President 1994 166,667 134,349 60,000 -0- -0-
and President, 1993 -0- -0- -0- -0- -0-
Super Kmart Centers
M. P. Rich.................. 1995 500,000 103,280(7) 130,000 -0- $ 1,250
Executive Vice President, 1994 146,154 100,000 70,000 -0- -0-
Strategic Planning, 1993 -0- -0- -0- -0- -0-
Finance and Administration
T. W. Watkins............... 1995 365,000 85,626(8) 40,000 -0- 10,950
Senior Vice President, 1994 350,000 -0- 29,000 -0- 12,963
International and 1993 335,000 82,102 29,000 -0- 13,919
Off-Shore Retailing
D. W. Keeble................ 1995 350,000 74,620(9) 100,000 -0- 10,500
Executive Vice President, 1994 300,833 -0- 48,000 -0- 9,025
Store Operations 1993 267,083 -0- 29,000 -0- 8,603
J. E. Antonini.............. 1995 153,800 -0- 200,000(10) -0- 1,267,833
Former Chief Executive 1994 923,000 -0- 125,000 -0- 27,540
Officer 1993 893,000 -0- 125,000 -0- 23,293
</TABLE>
- -------------------------
(1) Mr. Hall was named Chairman of the Board, President and Chief Executive
Officer as of June 4, 1995.
(2) All of Mr. Hall's 1995 cash bonus was used to purchase restricted shares of
Common Stock at an effective 20% discount pursuant to the Company's
Management Stock Purchase Plan. The value of the stock was $1,250,000.
(3) This amount represents the value of 500,000 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) pursuant to Mr.
Hall's employment contract with the Company.
(4) The value of perquisites, and other personal benefits, if any, is not
included because in each instance the aggregate incremental cost for such
benefits was below the required disclosure thresholds of the Securities and
Exchange Commission.
(5) Except for Mr. Antonini, the dollar amounts under "All Other Compensation"
consist of employer contributions under the Company's Retirement Savings
Plan and Supplemental Savings Plan. The Supplemental Savings Plan provides
benefits to the extent that the Employee Retirement Income Security Act
(ERISA) limits the amount of employer contributions to which a participant
would otherwise be entitled under the Retirement Savings Plan absent such
limitation. In fiscal 1995, such employer contributions for Messrs. Watkins
and Keeble were credited under the Supplemental Savings Plan. For Mr.
Antonini, "All Other Compensation" consists of $345 in employer
contributions to the Retirement Savings Plan and $1,267,488 in severance
payments.
(6) $20,656 of Mr. Floto's 1995 cash bonus was used to purchase restricted
shares of Common Stock at an effective 20% discount pursuant to the
Company's Management Stock Purchase Plan. The value of the stock was
$25,820.
(7) All of Mr. Rich's 1995 cash bonus was used to purchase restricted shares of
Common Stock at an effective 20% discount pursuant to the Company's
Management Stock Purchase Plan. The value of the stock was $129,100.
(8) $21,671 of Mr. Watkins' 1995 cash bonus was used to purchase restricted
shares of Common Stock at an effective 20% discount pursuant to the
Company's Management Stock Purchase Plan. The value of the stock was
$27,089.
(9) $4,975 of Mr. Keeble's 1995 cash bonus was used to purchase restricted
shares of Common Stock at an effective 20% discount pursuant to the
Company's Management Stock Purchase Plan. The value of the stock was
$6,218.
(10) Mr. Antonini resigned as of March 21, 1995 and these options were
forfeited.
7
<PAGE> 11
OPTION GRANTS IN FISCAL YEAR 1995. The following table shows all grants to
each of the executive officers named under Compensation of Officers herein in
fiscal 1995. (Stock Appreciation Rights are not permitted under the Company's
Stock Option Plans.)
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANTED GRANT DATE
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT VALUE
(#)(1) FISCAL 1995 ($/SH)(2) DATE ($)(3)
--------------- --------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
F. Hall...................... 3,450,000 41.01% $12.75 6/4/05 $ 9,108,000
R. J. Floto.................. 140,000 1.66 12.38 3/9/05 358,400
M. P. Rich................... 130,000 1.55 12.38 3/9/05 332,800
T. W. Watkins................ 40,000 0.48 12.38 3/9/05 102,400
D. W. Keeble................. 100,000 1.19 12.38 3/9/05 256,000
J. E. Antonini............... 200,000(4) -- -- -- --
</TABLE>
- -------------------------
(1) Options shown above will become exercisable on June 4, 1998 for Mr. Hall and
March 9, 1998 for all other officers.
(2) All options were granted at a price equal to 100% of the market value of the
Common Stock on date of grant (June 4, 1995 for Mr. Hall and March 9, 1995
for all other officers). 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
.3294; dividend yield of 6.86%; 10 year option term; 7.9% 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 resigned as of March 21, 1995 and these options were forfeited.
OPTION EXERCISES IN FISCAL YEAR 1995 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
1995 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 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT 1/31/96 OPTIONS AT 1/31/96
(#) ($)
SHARES ACQUIRED AGGREGATE VALUE ANNUAL VALUE
ON EXERCISE(#) REALIZED($) REALIZED($) EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
--------------- --------------- ------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C>
F. Hall............. -0- $-- $-- -0- /3,450,000 $-0-/-0-
R. J. Floto......... -0- -- -- -0- / 200,000 -0-/-0-
M. P. Rich.......... -0- -- -- -0- / 200,000 -0-/-0-
T. W. Watkins....... -0- -- -- 205,400 / 69,000 -0-/-0-
D. W. Keeble........ -0- -- -- 61,500 / 148,000 -0-/-0-
J. E. Antonini(1)... -0- -- -- 1,244,200 / -0- -0-/-0-
</TABLE>
- -------------------------
(1) Mr. Antonini resigned as of March 21, 1995.
8
<PAGE> 12
PENSION PLAN TABLE(1)
The following table illustrates the estimated annual benefits payable under
the combined Employee Pension Plan and Supplemental Pension Benefit Plan
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 accrual of benefits under the Company's tax-qualified Employee Pension
Plan was frozen as of January 31, 1996. Therefore, service after January
31, 1996 is not recognized for benefit calculation purposes, but is
recognized for vesting purposes. The Plan will provide benefits computed
under (i) a career average formula at 1.25% of the employee's compensation
for each year of credited service prior to January 31, 1996, 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 and prior to January 31, 1996 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 $623,820, as adjusted by any
increase in the urban consumer price index after January 1, 1996 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: F. Hall -- 1 year; R.J.
Floto -- 1 year; M.P. Rich -- 1 year; T.W. Watkins -- 29 years; D.W.
Keeble -- 25 years; and J.E. Antonini (who resigned as of March 21, 1995)
-- 31 years.
(2) "Remuneration" is the average compensation of an employee during their 5
highest years preceding January 31, 1996. 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.
9
<PAGE> 13
(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 prior to
January 31, 1996 up to a maximum of 30 years. The maximum reduction at age
65 is currently $9,596.
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
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. Mr. Antonini has been designated a
participant in the Plan.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS. The Company has entered into
employment or severance agreements with the executive officers named under
Compensation of Officers herein. Mr. Hall's agreement, which has a term ending
June 3, 2000, provides for an annual salary of at least $1 million, an annual
on-plan incentive bonus of at least $1 million (guaranteed for fiscal 1995 and
based on the attainment of performance goals in the future) and the 1995 grants
of the stock options and restricted shares described under Compensation of
Officers herein. If his employment is terminated by the Company other than for
cause or disability or if he terminates for good reason, he will be entitled to
receive monthly severance payments equal to his monthly base salary at the time
of termination, plus 1/12th the annual on-plan bonus for the year in which
termination occurred (the "severance payments"). The severance payments will be
made during a severance period equal to the term remaining on his employment
agreement at the time of termination, but in no event for less than 12 months
nor more than 36 months. In addition, if his employment is terminated without
cause and within two years of a change in control of the Company, he would be
entitled to receive a lump sum payment equal to the severance payments. The
agreements entered into with the other four current executive officers named
under Compensation of Officers, as well as with Mr. Antonini, the Company's
former CEO, are substantially similar and provide that, if employment is
terminated by the Company, other than for cause or disability, or if the
executive officer terminates employment for good reason, he will be entitled to
receive severance payments in monthly installments during a two year severance
period following termination equal to his monthly base salary at the time of
termination, plus 1/12th the annual on-plan bonus targeted for the year in which
termination occurred, which payments will be reduced by the amount of
compensation received from other employment. (The executive officer has an
obligation to seek such other employment.) In the event of termination for cause
or disability, the executive officer would not receive any severance payments
under the agreement. The Company estimates that if the employment of Messrs.
Hall, Floto, Rich, Watkins and Keeble were terminated in 1996, and severance
payments were due to them under their severance agreements, the total payments
due for the entire severance period (assuming no reduction for other employment)
would be approximately $7,263,900. Mr. Antonini resigned from the Company in
March 1995 after 31 years, 2 months of service. In addition to any payments
contractually due him under his severance agreement, Mr. Antonini will,
commencing at the end of his two year severance period, receive supplemental
pension benefits based on the equivalent of two additional years of service at
his rate of pay at the time of termination. 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 rate of pay at the time of termination. The Company also paid for
certain tax and financial counseling services for Mr. Antonini for a one year
period and is providing office space and related services during his two year
severance period.
The Company also entered into an employment agreement in December 1995 with
Warren Flick to serve as Executive Vice President of the Company and President
and General Merchandise Manager, U.S. Kmart Stores. The terms of the agreement
provide for a one-time hiring payment of $1,000,000, an annual salary of at
least $600,000, an annual on-plan incentive bonus opportunity (guaranteed in the
amount of $300,000 for 1996 and based on the attainment of performance goals in
the future), stock options for 400,000 shares of Common Stock upon commencement
of employment and for 250,000 shares of Common Stock in 1996, in each case at
the then current market price. (Mr. Flick purchased 100,000 shares of Common
Stock with his one-time hiring payment.) In the event Mr. Flick's employment is
terminated by the Company other than for cause or
10
<PAGE> 14
disability or if he terminates for good reason, severance payments are provided
under the agreement for up to 24 months equal to his monthly base salary at the
time of termination plus 1/12th of his annual on-plan bonus for the year in
which termination occurred. As a component of the compensation package offered
to Mr. Flick, the agreement also provides for an interest-free loan of $1
million. The loan has a maturity date of January 31, 2003. So long as Mr. Flick
remains an employee of the Company, the following amounts of the loan will be
forgiven: (i) at the end of fiscal 1996, by the amount by which his 1996 base
salary and incentive bonus are less than $1 million, and (ii) at the end of each
fiscal year thereafter, by the amount by which his annual base salary is less
than $1 million. In addition, if Mr. Flick's employment is terminated due to
death or disability, then the outstanding principal amount of the loan will be
forgiven. If Mr. Flick voluntarily terminates his employment with the Company or
if the Company terminates his employment for cause, the then outstanding
principal amount of the loan will become immediately due and payable.
COMPENSATION AND INCENTIVES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation and Incentives Committee of the Board of Directors. The Committee
is composed of six independent non-employee directors.
1995 CEO Compensation
The Company, which faced a difficult year in 1995, was faced with the
challenging task of recruiting a new CEO. Floyd Hall, an experienced and
talented retailer with a history of significant achievement -- including over 20
years as CEO of three major retail corporations, was successfully recruited for
this key position in June 1995.
The key components of the Company's executive compensation program consist
of salary, annual incentive bonus, stock purchases and stock options.
Historically, the Committee's policy with respect to these elements links a
significant portion of executive compensation with performance. In the
circumstance of hiring new executive officers during the past year -- in order
to compete in the marketplace for executive talent -- initial compensation was
of necessity less performance based than executive officer compensation has been
on an on-going basis. The compensation used to attract Mr. Hall to the Company
was heavily weighted with Company stock, in order to more closely align the
CEO's interests with those of stockholders. He was granted options for 3.45
million shares of the Company's Common Stock, priced at their market price as of
the date of grant. Such stock options are inherently performance based since, by
their terms, no value is received unless the price of the stock appreciates
after the date of grant. In addition, Mr. Hall was issued 500,000 shares of
restricted stock under the Company's Performance Restricted Stock Plan. This
gives Mr. Hall a significant equity interest in the Company, as well as assuring
his continuing employment, since both the options and restricted shares, by
their terms, will not vest until June 3, 1998, and, generally only if Mr. Hall
remains an employee of the Company for that time period. The number of options
and restricted shares granted to Mr. Hall was arrived at through negotiations of
Mr. Hall's employment agreement with the Company.
Mr. Hall was also guaranteed a bonus of $1 million cash for fiscal 1995.
Mr. Hall voluntarily elected to use 100% of this cash bonus to purchase
restricted shares of Company Common Stock at an effective 20% discount under the
Company's Management Stock Purchase Plan. Such shares will also be restricted
from transfer or sale until June 3, 1998.
Mr. Hall's 1995 salary was fixed at the rate of $1 million per year. This
was competitive with salaries being paid CEO's of comparable size companies
according to an annual executive compensation survey, discussed below, in which
the Company and other multi-billion dollar U.S. retailers participated. At his
request, Mr. Hall did not receive a salary increase for fiscal 1996.
Compensation Strategy and Objectives
The Committee 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 on an on-going basis is weighted towards
compensation paid on the basis of performance.
11
<PAGE> 15
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 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.
Each year the Committee conducts a review of the Company's executive
compensation program, assisted as needed by an independent compensation
consultant, 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 submitted to the Committee for its review and approval. At
the end of the fiscal year, the progress toward achieving these objectives is
again reviewed by the Committee, and compensation decisions are based on their
evaluation of performance for the year.
The Committee's policy with respect to each of the components of the
Company's executive compensation program 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 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 1995; 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. Any annual salary
adjustment, within each applicable position/salary grade, is determined based on
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 practice 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.
Annual Incentive Bonus
At the commencement of the fiscal year, incentive bonus criteria for
executive officers including corporate and business unit performance objectives
are submitted to the Committee for its review and approval. Participants are
assigned threshold, on-plan and maximum bonus levels. The on-plan incentive
bonus may be earned if the bonus criteria including annual objectives are
achieved. Generally 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.
12
<PAGE> 16
As the Committee discussed above, 1995 was a difficult year for the
Company. Since late 1994, 17 of the Company's 33 executive officers have been
replaced. In some instances, initial compensation packages included hiring
bonuses, as this was necessary to attract needed executive talent to the
Company. Moreover, all of the new executive officers were being asked to reverse
historic trends that predated their tenure with the Company. In light of this
situation, the Committee considered it important to provide all executive
officers with some opportunity to demonstrate and be rewarded for superior
personal achievement. Therefore, a two-step process was adopted. One step
involved the achievement of corporate and business unit goals, as well as a
discretionary component, to "fund" the bonus opportunity. The second step
involved the achievement of individual performance objectives to earn payouts of
any "funded" bonus opportunity.
Generally, 75% of the 1995 on-plan incentive bonus was to be funded based
on the achievement of corporate and business unit goals and 25% was to be funded
at the discretion of the Committee. Bonus payouts were to be based on the
achievement of individual performance objectives approved and subsequently
evaluated by the senior officer to whom the executive officer reported.
The actual 1995 incentive bonus funding was based (a) for the current U.S.
executives named under Compensation of Officers herein, other than the CEO, on
the achievement of certain U.S. Kmart store goals (which represented 12.5% of
their on-plan bonus opportunity) and (b) for Mr. Watkins, on the achievement of
certain profit goals by the Company's international retail operations
(equivalent to 25.6% of his on-plan bonus opportunity), plus (c) for all such
executives, the discretionary funding (representing 25% of their on-plan bonus
opportunity). Their bonus payouts (of 37.5% and 50.6%, respectively, of on-plan
bonus) were based entirely on the achievement of their individual performance
objectives.
Stock Purchases and Options
The Company's long-term incentive plans for executive officers and other
key executives consist 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. The
Management Stock Purchase Plan, which was approved by stockholders, provides for
the use of any annual incentive bonus earned by the executive officers and other
executive participants under the Annual Incentive Bonus Plan to be used to
purchase shares of Common Stock at an effective 20% discount, 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% of the performance
based portion of the bonus.
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. Under the Stock Option Plan, which was
approved by stockholders, options for Common Stock are granted annually to
eligible executives. Generally, the guidelines for executive officer stock
option grants (other than new hires) are established to deliver a specific
present value (under the Black-Scholes model) as a percentage of the salary
range midpoint for each position/salary grade. The present value of the option
shares granted to executive officers, other than the CEO, in 1995 ranged from
24% to 65% of the applicable salary range midpoint, depending on position/salary
grade. The number of option shares granted may also be impacted by the
executive's overall performance. Stock options are granted with an exercise
price equal to the market price of the Common Stock on the date of grant, expire
after ten years and have a three year cliff vesting period. The 1995 awards for
the current executives named under Compensation of Officers herein, other than
the CEO, were between the 50th and 75th percentile of long-term compensation
awards for executive officers of retailers participating in the
13
<PAGE> 17
above-described annual executive compensation survey and had a significantly
lower present value than the 1994 awards based on a Black-Scholes valuation.
Compensation and Incentives Committee
F. J. McDonald, Chair
J. A. Califano, Jr.
R. G. Cline
W. D. Davis
J. R. Munro
J. O. Welch, Jr.
The Compensation and Incentives Committee Report shall not be deemed
incorporated by reference into any filings by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
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, 1991.
COMPARISON OF CUMULATIVE TOTAL RETURN/JANUARY 1991 TO JANUARY 1996*
TOTAL SHAREHOLDER RETURNS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RETAIL STORES
(FISCAL YEAR COVERED) KMART CORP S&P INDEX COMPOSITE
<S> <C> <C> <C>
JAN-91 100.00 100.00 100.00
JAN-92 166.29 124.21 141.11
JAN-93 166.64 136.61 168.06
JAN-94 145.89 151.66 158.45
JAN-95 106.74 154.22 149.29
JAN-96 48.49 215.22 162.13
</TABLE>
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
Company's Common Stock
S&P 500 Composite Index
S&P Retail Stores Composite Index
*Total Return Assumes Reinvestment of Dividends
The graphs and related disclosure contained in this section of the Proxy
Statement shall not be deemed incorporated by reference into any filings by the
Company under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
14
<PAGE> 18
PROPOSAL 2 -- AMENDMENTS TO DIRECTORS STOCK PLAN RELATING
TO STOCK COMPENSATION FOR DIRECTORS
GENERAL
The stockholders are being asked to consider and approve certain amendments
to the Directors Stock Plan, as described herein and in Annex A, to increase the
portion of a director's compensation payable in stock and to enhance certain of
the benefits payable under such plan in light of the termination and freezing of
benefits under the Directors Retirement Plan. The Directors Stock Plan was
adopted by the Board on December 16, 1991 and was approved by stockholders and
became effective on May 27, 1992. The Plan was previously amended by the Board
on March 28, 1995. The Directors Stock Plan is administered by the Compensation
and Incentives Committee of the Board (the "Committee"), which is comprised
solely of non-employee directors. As of March 7, 1996, shares of Common Stock
issued under the Directors Stock Plan were held by twelve directors.
DESCRIPTION OF AMENDMENTS TO DIRECTORS STOCK PLAN
On September 19, 1995 , the Board approved, subject to approval by
stockholders, certain amendments to the Directors Stock Plan, effective January
1, 1996, described herein and in Annex A. The description of these amendments is
qualified in its entirety by reference to the text of such amendments set forth
in Annex A.
The purpose of the Directors Stock Plan is to increase the proprietary
interest in the Company of non-employee members of the Board by providing for
payment of a portion of their fees in shares of Common Stock, thereby further
aligning director compensation with the interests of stockholders generally.
Since the adoption of this Plan, stockholder support for the payment of
directors' compensation in stock has grown dramatically. The Board also strongly
supports this concept and has therefore adopted, and recommends that
stockholders approve, amendments to the Directors Stock Plan to increase, as
discussed below, the portion of compensation paid to non-employee directors of
the Company in the form of Common Stock.
Freezing of Directors Retirement Plan. Effective January 1, 1996, the Board
approved terminating benefits to new directors and freezing the accrual of
future benefits to existing directors under the Directors Retirement Plan,
subject to stockholder approval of the amendments to the Directors Stock Plan
described herein and in Annex A. The Directors Retirement Plan was adopted by
the Board of Directors on May 1, 1984. The purpose of the Directors Retirement
Plan was to assist the Company in its efforts to attract and retain the best
possible directors from outside the Company. While the Company still has the
need to attract and retain high caliber directors, the Board is seeking to
compensate non-employee directors through increased stock compensation. Under
the Directors Retirement Plan, after five years of Board service, a non-employee
director would be eligible to be paid an annual benefit, following retirement
from the Board, for the number of years equal to the director's years of service
on the Board, but no more than ten years, in an amount equal to the annual
retainer fee in effect for non-employee directors at the time of the director's
retirement from the Board.
Amendments to Directors Stock Plan. To reduce the cash compensation paid to
directors and to reflect that benefits under the Directors Retirement Plan will
be frozen if this proposal is approved by stockholders, the Board has adopted
amendments to the Directors Stock Plan which:
(1) increase the mandatory Common Stock portion of the annual retainer
fee for non-employee directors from 20 percent to 50 percent and permit a
director to elect payment of up to 100 percent of the annual retainer in
Common Stock;
(2) credit non-employee directors with Restricted Common Stock Units
which are equal in value to 50 percent of the then current annual retainer
fee, such Units to be granted each year until the earliest to occur of: (a)
the expiration of ten years, (b) the date when the sum of the years for
which the director has received Common Stock Unit credits plus the years
for which the director is entitled to receive benefits under the Directors
Retirement Plan equals ten years, or (c) the director's retirement from the
Board. Such Common Stock Units are to be distributed in shares of Common
Stock following a director's retirement from the Board; and
15
<PAGE> 19
(3) credit each chairperson of a Board Committee with Common Stock
Units for each year of service which are equal in value to 10 percent of
the then current annual retainer fee, such Units to be distributed in
shares of Common Stock following a director's retirement from the Board.
DESCRIPTION OF DIRECTORS STOCK PLAN AS PROPOSED TO BE AMENDED
Purpose. The purpose of the Directors Stock Plan is to increase the
proprietary interest in the Company of non-employee members of the Board by
providing that a large portion of their compensation will be in the form of
Common Stock and Restricted Common Stock Units, thus increasing their incentive
to contribute to the success of the Company. The Directors Stock Plan is
intended to comply with Rule 16b-3 under the Exchange Act.
Administration. The Directors Stock Plan is administered by the Committee
which is comprised solely of non-employee directors. The Committee can make such
rules and regulations and establish such procedures for the administration of
the Directors Stock Plan as it deems appropriate.
Stock Subject to Directors Stock Plan. The number of shares of Common Stock
originally reserved for issuance under the Directors Stock Plan was 400,000 of
which, as of March 7, 1996, 385,114 shares of Common Stock remain available for
issuance. Shares issued under the Directors Stock Plan may be either authorized
and unissued shares or shares that have been reacquired by the Company.
Delivery or Deferral of Stock. Effective January 1, 1996, each calendar
year, each Director receives 50 percent (and, at the election of the director,
up to 100 percent) of his or her annual retainer fee in shares of Common Stock
in lieu of cash. Such shares are (unless deferred) delivered to the director on
a calendar quarterly basis of such calendar year (the "Normal Stock Payment
Date"), with the number of shares to be based on the closing price of the Common
Stock on the last business day preceding the Normal Stock Payment Date. The
aggregate fair market value of all such shares is equal to the cash amount for
which such Common Stock payment is substituted. The number of the shares of
Common Stock to be included in any such Stock payment is determined by dividing
(i) an amount equal to a certain percentage of the cash amount for which Common
Stock is to be substituted by (ii) the fair market value per share of the Common
Stock as of such date.
Directors may elect to defer the actual receipt of all or a portion of the
shares of Common Stock otherwise deliverable on the Normal Stock Payment Date.
Deferred shares are credited with an amount equal to the dividends, if any,
payable on such shares, which would be converted on a quarterly basis into
additional shares of Common Stock.
If it is determined by the Board that a director is engaged in any activity
or association in competition with or adverse to the interest of the Company,
Common Stock representing any deferred shares and any Restricted Common Stock
Units credited for serving as chair of a regular Board Committee would be
immediately distributed to the director; any other Restricted Common Stock Units
would be forfeited. If there is a change in control of the Company, as defined
in the Plan, Common Stock representing any deferred shares and any Restricted
Common Stock Units would be immediately distributed to the director.
Restricted Common Stock Units. Effective as of January 1, 1996, each
director will be credited with Restricted Common Stock Units equal in value to
50 percent of the then current annual retainer fee, such Units to be granted
each year until the earliest to occur of: (a) completion of a ten-year period of
such credits, (b) the date when the sum of the years of such credits plus the
years for which the director is entitled to receive benefits under the Directors
Retirement Plan equals ten years, or (c) the date of the director's retirement
from the Board.
Effective January 1, 1996, each director who serves as chair of a regular
committee of the Board will be credited with Restricted Common Stock Units, for
each year of service, equal in value to 10 percent of the then current annual
retainer fee.
The Common Stock Units are credited on the Normal Stock Payment Dates each
calendar quarter, with the number of Units so credited on each such date being
equal to 12 1/2% (plus an additional 2 1/2% for
16
<PAGE> 20
Committee chairs) of the current annual retainer fee divided by the closing
price per share of Common Stock on the last business day preceding each Normal
Stock Payment Date. The Common Stock Units are credited with dividend
equivalents, if any, which are converted into Common Stock Units. Except as
discussed above under "Delivery or Deferral of Stock," the Common Stock Units
are generally distributed in shares of Common Stock following the director's
retirement in a manner determined by his or her prior irrevocable election.
Future Amendments to or Discontinuance of Directors Stock Plan. The Board
can from time to time amend, suspend or discontinue the Directors Stock Plan in
whole or in part, including such amendments as it deems necessary to comply with
applicable laws, rules and regulations.
Term. The Directors Stock Plan will remain in effect until the earlier of
December 15, 2006 or a change in control of the Company unless sooner terminated
by the Board.
Estimated Shares and Units to be Issued in 1996 under Directors Stock Plan
as Proposed to be Amended. As described above, the Directors Stock Plan is
proposed to be amended to increase the portion of the compensation of
non-employee directors which will be paid in Stock or Restricted Common Stock
Units. Only non-employee directors are eligible to participate in the Directors
Stock Plan. Assuming a Common Stock price of $8.19 per share (the closing price
per share of Common Stock on March 7, 1996) on each valuation date in 1996, each
of the 12 non-employee directors of the Company who are standing for re-election
or continuing in office will be entitled to receive 3,052 shares of Common
Stock, representing the mandatory stock portion of his or her 1996 annual
retainer fee, or 36,630 shares of Common Stock in the aggregate; each of the
four non-employee chairpersons of a Board Committee will be entitled to be
credited with 1,221 Restricted Common Stock Units for 1996, representing 10% of
such director's 1996 annual retainer fee, or 4,884 Restricted Common Stock Units
in the aggregate; and each such non-employee director (other than two directors
who are currently entitled to benefits for the maximum 10-year period under the
Directors Retirement Plan) will be entitled to be credited with 3,052 Restricted
Common Stock Units for 1996, representing 50% of such director's 1996 annual
retainer fee, or 36,630 Restricted Common Stock Units in the aggregate.
APPROVAL OF PROPOSAL 2 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 MEETING. IF PROPOSAL 2 IS NOT
APPROVED, THE AMENDMENTS SHALL BE OF NO FORCE AND EFFECT, AND THE DIRECTORS
STOCK PLAN (AS IN EFFECT WITHOUT REGARD TO SUCH AMENDMENTS) AND THE DIRECTORS
RETIREMENT PLAN, WHICH WAS FROZEN SUBJECT TO STOCKHOLDER APPROVAL OF THE ABOVE
AMENDMENTS, SHALL CONTINUE IN EFFECT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3 -- AMENDMENTS TO 1992 STOCK OPTION PLAN RELATING TO
AUTHORITY OF COMPENSATION AND INCENTIVES COMMITTEE TO DETERMINE
POST-EMPLOYMENT EXERCISE PERIOD AND SIZE OF AWARDS
The stockholders are being asked to consider and approve amendments to the
1992 Stock Option Plan (the "Plan") that grant to the Compensation and
Incentives Committee (the "Committee") greater authority to determine (a) the
exercise period following an optionee's termination of employment for stock
options granted under the Plan, and (b) the size of award to be made under the
Plan. The Plan was adopted by the Board on January 21, 1992 and was approved by
stockholders and became effective on May 27, 1992. It was amended by the Board
on April 22, 1994, and such amendments were approved by stockholders and became
effective on June 3, 1994. The Plan is administered by the Committee, which is
comprised solely of non-employee directors who are not eligible to receive
options under the Plan. Options granted under the Plan may be options qualifying
as incentive stock options under the Internal Revenue Code ("ISOs") or
nonqualified stock options ("NQSOs"). The maximum term of an NQSO may not exceed
ten years and two days, and the maximum term of an ISO may not exceed ten years.
The Board can from time to time amend, suspend or discontinue the Plan in whole
or in part, including such amendments as it deems necessary to comply with
applicable laws, rules and regulations.
17
<PAGE> 21
DESCRIPTION OF AMENDMENTS TO 1992 STOCK OPTION PLAN
Post-Employment Exercise Period. On March 19, 1996, the Board approved,
subject to approval by stockholders, the amendment to Section 5 of the Plan
described herein and in Annex B, to give the Committee the authority to extend
the period of time during which stock options may be exercised following an
optionee's termination of employment with the Company or a subsidiary of the
Company. The description of this amendment is qualified in its entirety by
reference to the text of such amendment set forth in Annex B.
Prior to such amendment, the time period for an optionee's exercise of
stock options following termination of employment was three months except for
optionees with ten years of service with the Company or a subsidiary or whose
termination of employment resulted from death or total and permanent disability
(as defined in the Company's Employee Pension Plan), in which case the time
period for exercise was three years.
The Company is currently in a turnaround situation and, in order to recruit
executives who have the talent, qualifications and experience that the Company
needs at this time, the Company has found it necessary to contractually agree
with certain newly hired executives that they will have, following termination
of their employment, a reasonable period of time to exercise any stock options
granted to them during their employment. For example, subject to approval of
this amendment by stockholders, on December 31, 1995, in connection with hiring
Warren Flick, the new Executive Vice President and President and General
Merchandise Manager, U.S. Kmart Stores, the Committee granted stock options to
Mr. Flick which provide for a three year exercise period following termination
of employment if terminated by the Company without cause or by him for good
reason. By granting to the Committee the discretion to designate an appropriate
period of time for exercise, the Company will have the flexibility it needs to
recruit and retain the highly qualified executives, like Mr. Flick, that it
needs.
Size of Awards. On March 19, 1996, the Board approved, subject to approval
by stockholders, the amendment to Section 14 of the Plan described herein and in
Annex B, to increase the maximum number of shares that may be the subject of
option grants to any optionee during a specified period under the Plan. The
description of this amendment is qualified in its entirety by reference to the
text of such amendment set forth in Annex B.
The provision regarding the size of awards under the Plan previously
approved by stockholders set the maximum number of options that could be granted
to an employee in a calendar year at ten percent of the total number of options
granted to all employees in such calendar year. In the current environment, it
has been necessary for the Company to make larger grants of stock options in
order to hire, retain and motivate the talented and experienced executives who
are needed at this time to accomplish the Company's turnaround strategy. For
this reason, this amendment, effective as of January 1, 1996, provides that the
maximum number of options for Common Stock that may be granted to an employee in
a calendar year shall be limited to one million shares, subject to equitable
adjustment for certain corporate transactions, as set forth in the Plan. For
example, subject to the approval of this amendment by stockholders, on March 11,
1996, the Committee granted 900,000 stock options to Floyd Hall. The Committee
determined the grant to be fair and equitable in light of the very challenging
circumstances with which the new CEO has been faced, and continues to be faced
- -- and that these circumstances therefore warranted a substantial grant in 1996,
a pivotal year in the Company's turnaround.
The proposed amendment is intended to afford the Company the necessary
flexibility to make appropriate grants, while continuing to assure that future
grants under the Plan will comply with Section 162(m) of the Internal Revenue
Code (the "Code"), as amended by the Omnibus Budget Reconciliation Act of 1993
(the "Revenue Act"), which otherwise could limit the deductibility of
compensation realized in connection with the exercise of options. The Revenue
Act limits the deductibility of certain compensation in excess of $1 million per
year paid by a publicly traded corporation to the following individuals who are
employed as of the end of the corporation's tax year: the chief executive
officer and the four other executive officers named in the summary compensation
table of the corporation's proxy statement. However, compensation which
qualifies as "performance-based" compensation is exempt from the $1 million
deductibility limitation. In order for compensation provided upon the exercise
of options granted pursuant to the Plan to qualify for this exemption, the
material terms under which the compensation is to be paid (including the maximum
number of options
18
<PAGE> 22
that can be awarded to any employee during a specified period) must be disclosed
to and approved by stockholders in a separate vote prior to payment. In an
effort to comply with the provisions of the Revenue Act and to qualify the
compensation payable to the above listed executives upon the exercise of options
granted under the Plan as compensation eligible for exclusion from the deduction
limit, this amendment to the Plan is being submitted to stockholders for
approval at the Annual Meeting.
The amendment will not affect the Committee's discretion, in accordance
with the provisions of the Plan, to determine to whom an option is granted, the
number of shares optioned (subject to the allocation provision set forth herein
and to the overall share limit of the Plan) and the terms and conditions of the
option; however, it will enhance the Committee's flexibility to make a larger
grant to an individual employee should the Committee believe that the
circumstances so warrant.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal income tax
consequences of transactions under the Plan based on current Federal income tax
laws. The summary is not intended to constitute tax advice and, among other
things, does not address possible state, local or foreign tax consequences.
Nonqualified Options. No income would be realized by an optionee upon grant
of a nonqualified option. Upon exercise of a nonqualified option, the optionee
would recognize ordinary compensation income in an amount equal to the excess,
if any, of the fair market value of the underlying stock over the option
exercise price (the "Spread") at the time of exercise. The Spread would be
deductible by the Company for Federal income tax purposes (i) provided that
applicable Federal income tax withholding requirements are satisfied and (ii)
subject to the possible limitations on deductibility under Section 162(m) of the
Code of compensation paid to the executives designated in that Section. The
optionee's tax basis in shares of the underlying stock acquired by exercise of a
nonqualified option would equal the exercise price plus the amount taxable as
compensation to the optionee. Upon a sale of the shares received by the optionee
upon exercise of the nonqualified option, any gain or loss is generally
long-term or short-term capital gain or loss, depending on the holding period.
The required holding period for long-term capital gain is presently more than
one year. The optionee's holding period of shares acquired pursuant to the
exercise of a nonqualified option would begin on the date of exercise of such
option. The excess of the net long-term capital gain over net short-term capital
loss is taxable at a maximum stated tax rate of 28%.
Pursuant to applicable rules under Section 16(b) of the Exchange Act, the
grant of an option (and not its exercise) to a person who is subject to the
reporting and short-swing profit provisions under Section 16 of the Exchange Act
begins the six-month period of potential short-swing liability. The taxable
event for the exercise of an option that has been outstanding at least six
months ordinarily would be the date of exercise. If an option is exercised
within six months after the date of the grant, however, taxation ordinarily
would be deferred until the date which is six months after the date of grant,
unless the person has filed an election pursuant to Section 83(b) of the Code to
be taxed on the date of exercise.
The payment by an optionee of the exercise price, in full or in part, with
shares of previously acquired Common Stock would not affect the tax treatment of
the exercise as described above. With respect to such exchange, no gain or loss
generally would be recognized to the optionee upon the surrender of the
previously acquired shares to the Company, and shares received by the optionee,
equal in number to the previously surrendered shares, would have the same tax
basis as the shares surrendered to the Company and would have a holding period
that includes the holding period of the shares surrendered. The value of the
shares received by the optionee in excess of the number of shares surrendered to
the Company would be taxable to the optionee. Such additional shares would have
a tax basis equal to the fair market value of such additional shares as of the
date ordinary income is recognized, and would have a holding period that begins
on the date ordinary income is recognized. The conversion of nonqualified
options should have no tax effect on either the optionee or the Company.
Incentive Stock Options. The Code requires that, for incentive stock option
("ISO") treatment, shares acquired through exercise of an ISO cannot be disposed
of before two years from the date of grant and one year from the date of
exercise. ISO holders generally incur no Federal income tax liability at the
time of grant
19
<PAGE> 23
or upon exercise of such options. However, the Spread will be an "item of tax
preference" which may give rise to "alternative minimum tax" liability at the
time of exercise. If the optionee does not dispose of the shares before two
years from the date of grant and one year from the date of exercise, the
difference between the exercise price and the amount realized upon disposition
of the shares would constitute long-term capital gain or loss, as the case may
be. Assuming both holding periods are satisfied, no deduction would be allowable
to the Company for Federal income tax purposes in connection with the grant of
exercise of the option. If, within two years of the date of grant or within one
year from the date of exercise, the holder of shares acquired through exercise
of an ISO disposes of such shares, the optionee would generally realize ordinary
taxable compensation at the time of such disposition equal to the difference
between the exercise price and the lesser of the fair market value of the stock
on the date of initial exercise or the amount realized on the subsequent
disposition, and the amount realized upon such disposition would be deductible
by the Company for Federal income tax purposes, subject to the possible
limitations on deductibility under Section 162(m) of the Code of compensation
paid to executives designated in that Section.
If the optionee pays the exercise price, in full or in part, with shares of
previously acquired Common Stock, proposed Internal Revenue Service regulations
would impose the following rules. If the shares surrendered in payment of the
exercise price of an ISO are "statutory option stock" (including stock acquired
pursuant to the exercise of an ISO) and if, at the time of surrender, the
applicable holding period for such shares had not been met, any gain realized on
such transfer would be taxable to the optionee, as discussed above. Otherwise,
when shares of Common Stock are surrendered upon exercise of an ISO, in general
(i) no gain or loss would be recognized as a result of the exchange, (ii) the
number of shares received that is equal in number to the shares surrendered
would have a tax basis equal to the shares surrendered and would have a holding
period that includes the holding period of the shares exchanged, and (iii) any
additional shares received would have a zero tax basis and would have a holding
period that begins on the date of the exchange. If any of the shares received
are disposed of within two years from the date of grant of the ISO or within one
year from the date of exercise, the shares with the lowest tax basis would be
deemed to be disposed of first, and such disposition would be a disqualifying
disposition giving rise to ordinary income as discussed above.
APPROVAL OF PROPOSAL 3 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 MEETING. IF PROPOSAL 3 IS NOT
APPROVED, THE AMENDMENTS SHALL BE OF NO FORCE AND EFFECT, AND THE 1992 STOCK
OPTION PLAN (AS IN EFFECT WITHOUT REGARD TO SUCH AMENDMENTS) SHALL CONTINUE IN
EFFECT.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to stockholder 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.
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 stockholders.
APPROVAL OF THE RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS
INDEPENDENT ACCOUNTANTS 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 MEETING.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
20
<PAGE> 24
PROPOSAL 5 -- STOCKHOLDER PROPOSAL
The Company has been advised that Paul R. Wierbicki, who is the beneficial
owner of 1,134 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 Board is hereby requested to adopt a stock option plan
whereby all stock option awards to executive officers in excess of 5,000 shares
be contingent upon the achievement of specific increases in the stock price."
STOCKHOLDER'S SUPPORTING STATEMENT
"Large stock option grants are given to certain management people in
anticipation of their ability to generate increased earnings and thereby an
increased stock price. In 1994 alone, options for 305,500 shares of stock were
granted to the top five Kmart executives bringing the total number of options
held by them to 2,952,200 shares. As these stock options have a ten year life
span, assuming all employment conditions are met, it is very possible that the
increased share value would be created by executives other than those to whom
the large awards were given. This would create an unjust enrichment of the
original grantees at the expense of all other stockholders.
For example, according to the 1995 Proxy Statement, two former top
executives held options for a total of 1,791,300 shares at their time of
separation. Of these 1,791,300 options, 372,500 had not been held for the three
year vesting period but were awarded upon termination. Now, consider that
options will be awarded at a very low price due to the recent performance of the
Company. Many of those receiving options will be those who were in office during
the last several years and could be well rewarded in the event of a future
turnaround in which they may not participate due to retirements, etc.
This proposal would allow 5,000 shares as a general incentive and require
the attainment of specific stock price goals in order to vest the remainder of
the option grant. Such a plan protects the stockholders from poor performance
yet provides a just reward for the management team that performs well."
BOARD OF DIRECTORS' STATEMENT OPPOSING STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. Options
granted under the Company's existing Stock Option Plan at the stock's market
price on the date of grant are inherently performance based. If the stock price
does not appreciate after the date of grant, the options have no value. In
addition, if the optionee does not remain an employee of the Company for a
period of up to three years from the date of grant, the options are generally
forfeited.
The plan being proposed would require that a specific stock price goal be
attained as a condition of the vesting of any option grant to executive officers
in excess of 5,000 shares per year. This unusual vesting requirement could
trigger adverse accounting consequences for the Company because, under
applicable accounting rules, the Company would be required to record
compensation expense equal to the difference between the price of the option
shares on the date of grant and the price on the date that the goal stock price
was attained -- whether or not the options were ever exercised. In contrast, the
Company is not required to recognize an expense for options granted under the
existing Stock Option Plan.
Moreover, stock options constitute an important element in the compensation
package offered to executives -- both those that the Company is trying to
attract and those that the Company needs to retain. Adding conditions to the
Company's stock options which are not standard at other companies could put the
Company at a competitive disadvantage in terms of attracting high-caliber
executives to the Company. While the Board continues to explore additional ways
to link compensation and performance, the Board does not believe that the
implementation of this proposal is in the best interest of stockholders.
APPROVAL OF PROPOSAL 5 WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE VOTES CAST BY THE HOLDERS OF COMMON STOCK WHO ARE PRESENT IN PERSON OR
REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE MEETING. APPROVAL WOULD NOT,
HOWEVER, REQUIRE THAT THE REQUESTED ACTION BE TAKEN SINCE THE PROPOSAL IS
PRECATORY. IN
21
<PAGE> 25
THE EVENT THAT THE BOARD WERE TO DETERMINE TO TAKE SUCH ACTION, IT COULD DO SO
WITHOUT FURTHER APPROVAL OF STOCKHOLDERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5.
PROPOSAL 6 -- STOCKHOLDER PROPOSAL
The Company has been advised that the Board of Trustees of the Laborers'
District Council and Contractors' Pension Fund, which is the beneficial owner of
12,500 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
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
22
<PAGE> 26
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, six of whom have been elected to the Board during the
past year, and the only employee director will be the Chief Executive Officer of
the Company, who was also elected to the Board during the past year.
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 PROPOSAL 6 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 MEETING. APPROVAL WOULD NOT,
HOWEVER, REQUIRE THAT THE REQUESTED ACTION BE TAKEN SINCE THE PROPOSAL IS
PRECATORY. UNDER MICHIGAN LAW, AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO
PROVIDE FOR CUMULATIVE VOTING MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF THE
OUTSTANDING SHARES ENTITLED TO VOTE THEREON.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 6.
STOCKHOLDER PROPOSALS 7, 8 AND 9
The Company has received notice, in accordance with the Company's By-laws,
from the Union of Needletrades, Industrial & Textile Employees and the
International Brotherhood of Teamsters (together, the "Unions"), which
beneficially own an aggregate of 390 shares of Common Stock, that they intend to
present jointly Proposals 7, 8 and 9 at the Annual Meeting. The Unions, using
the name "Kmart's Independent Shareholders' Committee," have subsequently filed
proxy materials with the Securities and Exchange Commission relating to the
proposed resolutions and have indicated that they intend to solicit proxies from
stockholders of the Company with respect to such matters.
In considering the matters to be presented by the Unions at the Annual
Meeting, stockholders should be aware that the Company is presently involved
with each of these Unions in various labor matters. In particular, the
International Brotherhood of Teamsters is engaged in organizing activities at
two Company facilities, while the Union of Needletrades, Industrial & Textile
Employees has been engaged in protracted negotiations with the Company for the
past two years regarding another of the Company's facilities.
The Company believes that these actions by the Unions, although ostensibly
related to corporate governance-related issues, are being taken at this time for
the purpose of pressuring the Company to take actions which are not in the best
interest of the Company and its stockholders. The Company further believes that
supporting these proposals will encourage the Unions in their efforts to harass
and pressure the Company in connection with their labor-related disputes.
The Company is disappointed that the Unions have chosen to engage in a
so-called contested solicitation during these critical times for the Company.
However, the Board of Directors, whose members consist -- with the exception of
the CEO -- entirely of independent, outside directors, and the Company's
management team do not intend to allow these actions to interfere with their
commitment to implementing a turnaround at the Company and improving stockholder
value.
Stockholders wishing to vote on the proposals to be presented by the Unions
will be afforded an opportunity to do so on the White Proxy Card being
distributed by the Company and enclosed herewith.
23
<PAGE> 27
THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE THEIR PREFERENCES ON THE
COMPANY'S WHITE PROXY CARD AND TO DISCARD ALL BLUE PROXY CARDS BEING DISTRIBUTED
BY THE UNIONS.
PROPOSAL 7 -- STOCKHOLDER PROPOSAL
The Unions have notified the Company of their intention to present the
following resolution:
"RESOLVED: that the stockholders 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 stand for election annually, all in a manner
permitted by applicable law."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. When
classification of the Board of Directors was adopted 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.
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 because classification ensures continuity in the
composition of the board, assures that a majority of the directors have prior
experience and in-depth knowledge of the Company and prevents sudden and
disruptive changes in corporate policies by precluding election of an entirely
new group of directors in a single year. In addition, they believed that a
classified board afforded the Company valuable protection against an unsolicited
takeover unfavorable to stockholders by giving incumbent directors the time and
leverage necessary to negotiate a more favorable and fair result or to consider
appropriate alternate strategies, in order to more effectively represent the
interests of all stockholders of the Company.
In considering this proposal, stockholders should be mindful of the Board's
belief that, when faced with any unsolicited takeover proposal, stockholders of
a company with a classified board should be in a position to receive a price
premium greater than that received by stockholders of a company without a
classified board. The reality of this concern 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. In addition, the Company's Shareholder Rights Plan (a
so-called "poison pill" plan) was redeemed following the 1995 annual
stockholders meeting. Without either a classified board or a "poison pill" plan,
the Company will be limited in its ability to negotiate and explore alternatives
so as to maximize stockholder value.
The Board of Directors is committed to improving performance and enhancing
stockholder value and does not believe that a staggered board in any way
diminishes this commitment or the Board's accountability to stockholders, as
demonstrated by the fact that seven of the 13 Kmart directors have joined the
Board in the past year.
The Board is aware that stockholders may have differing points of view on
this subject, as evidenced by the vote on last year's stockholder proposal. The
Board notes however, that while the 1995 stockholder proposal received more than
60% of the shares voted on the proposal, it received less than 41% of the
outstanding shares of the Company -- which is significantly less than the 58% of
outstanding shares required by the Company's Articles of Incorporation to
eliminate the classified board. The Board believes that the classified board
provisions presently set forth in the Articles of Incorporation, on balance for
the reasons set forth above, continue to be in the best interests of the Company
and its stockholders.
APPROVAL OF PROPOSAL 7 WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE VOTES CAST BY THE HOLDERS OF COMMON STOCK WHO ARE PRESENT IN PERSON OR
REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE MEETING. APPROVAL WOULD NOT,
HOWEVER, REQUIRE THAT THE REQUESTED ACTION BE TAKEN SINCE THE PROPOSAL IS
PRECATORY. UNDER THE COMPANY'S ARTICLES OF INCORPORATION, A PROPOSAL TO AMEND OR
REPEAL THE ARTICLE ESTABLISHING THE
24
<PAGE> 28
CLASSIFIED BOARD MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF 58% OF THE
OUTSTANDING SHARES OF THE COMPANY ENTITLED TO VOTE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 7.
PROPOSAL 8 -- STOCKHOLDER PROPOSAL
The Unions have notified the Company of their intention to present a
resolution requesting that the Company eliminate the current retirement plan for
non-employee directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. In
September 1995, the Company decided, as described under Proposal 2 herein, to
eliminate the Company's Directors Retirement Plan as of January 1, 1996 by
terminating benefits to new directors and freezing the accrual of future
benefits to existing directors under the Plan.
By taking action to freeze the Directors Retirement Plan, the Board of
Directors has in effect placed Kmart directors on a par with Kmart employees
whose retirement plan was also frozen as of January 1996. In connection
therewith, the Board also decided, subject to stockholder approval of the
stock-based program described under Proposal 2 herein, to increase the ties
between director benefits and appreciation in the price of Kmart Common Stock --
which price is inherently tied to the Company's profitability. In this way, the
Board of Directors has demonstrated a willingness to align their interests with
shareholders and employees alike and to establish a compensation structure which
reflects this alignment. The Company's actions are also generally consistent
with actions taken by other companies which have eliminated director retirement
plans.
APPROVAL OF PROPOSAL 8 WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE VOTES CAST BY THE HOLDERS OF COMMON STOCK WHO ARE PRESENT IN PERSON OR
REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE MEETING. APPROVAL WOULD NOT,
HOWEVER, REQUIRE THAT THE REQUESTED ACTION BE TAKEN SINCE THE PROPOSAL IS
PRECATORY. NEVERTHELESS, THE BOARD OF DIRECTORS HAS ALREADY ACTED TO FREEZE THE
CURRENT RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS SUBJECT TO STOCKHOLDER
APPROVAL OF PROPOSAL 2 HEREIN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 8.
PROPOSAL 9 -- STOCKHOLDER PROPOSAL
The Unions have notified the Company of their intention to present a
resolution requesting that the Board of Directors undertake a comprehensive
study of the feasibility of a sale or merger of Kmart, and other extraordinary
initiatives designed to increase stockholder value and make its findings known
to the stockholders within six months from the date of the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL. The Board
of Directors and management are firmly committed to increasing stockholder
value, and they regularly consider what actions should be taken to maximize
stockholder value and the interests of the Company's key constituencies.
Acquisition by, or of, the Company, as well as divestitures are examined on an
on-going basis. In fact, the Company's sales of substantially all of its
holdings in the Borders Group, OfficeMax, PACE Membership Warehouse, PayLess
Drugstores, The Sports Authority and Coles Myer over the past 18 months amply
demonstrate the Company's readiness to undertake extraordinary transactions to
position the Company for the future. The Board and management are ever mindful
of the need to search for ways of increasing the Company's financial and
operational resources and believe that the best way to maximize stockholder
value at this time is by revitalizing the Company's core discount retailing
operations through, among other things, a restructuring of the Company's capital
structure, a refocusing of its merchandising efforts, the improving of internal
systems and the completion of the management changes necessary to position the
Company for the future. Accordingly, the Board believes that the preparation at
this time of the report contemplated by the resolution would amount to a waste
of corporate assets and would serve only as a distraction from the more
important tasks at hand.
25
<PAGE> 29
APPROVAL OF PROPOSAL 9 WILL REQUIRE THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE VOTES CAST BY THE HOLDERS OF COMMON STOCK WHO ARE PRESENT IN PERSON OR
REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE MEETING. APPROVAL WOULD NOT,
HOWEVER, REQUIRE THAT THE REQUESTED ACTION BE TAKEN SINCE THE PROPOSAL IS
PRECATORY. IN THE EVENT THAT THE BOARD WERE TO DETERMINE TO TAKE SUCH ACTION, IT
COULD DO SO WITHOUT FURTHER APPROVAL OF STOCKHOLDERS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 9.
OTHER BUSINESS/FUTURE STOCKHOLDER PROPOSALS
The Board of Directors knows of no other matters to be voted upon at the
Meeting. 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 1997 Annual Meeting of
Stockholders must be received by the Secretary of the Company on or before
December 13, 1996 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 1995 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.
26
<PAGE> 30
ANNEX A
PROPOSAL 2 -- AMENDMENTS TO DIRECTORS STOCK PLAN RELATING
TO STOCK COMPENSATION FOR DIRECTORS
Subject to stockholder approval, the Kmart Corporation Amended and Restated
Directors Stock Plan (the "Directors Stock Plan") was amended by action of the
Board of Directors of Kmart Corporation (the "Company") as of January 1, 1996 as
follows:
Section 4.1 of the Plan is amended as follows:
4.1 Mandatory Portion. For each calendar year commencing with the
calendar year beginning January 1, 1996, each member of the Board who is
not an employee of the Company or any of its subsidiaries (an "Eligible
Director") shall receive a whole number of shares of Stock equal in value
to 50% of any cash compensation payable for services as an Eligible
Director (including services as non-executive Chairman or Vice Chairman of
the Board) during each such calendar year in lieu of payment of such
percentage of such cash compensation. Such shares shall be delivered to
each such director, in substantially equal installments, on the last
business day of each calendar quarter of each such calendar year (the
"Normal Stock Payment Date"), except to the extent that a Deferral Election
(as defined in Section 4.3 hereof) shall be in effect with respect to such
shares or that Section 4.6 hereof applies.
Each such share shall be valued at the closing price per share of
Stock as reported on the Composite Transactions reporting system, or if not
so reported, as reported by the New York Stock Exchange (the "Closing
Price") on the last business day preceding each Normal Stock Payment Date
(the "Share Value Price"). The value of fractional shares shall be paid to
the director in cash.
Section 4.2 of the Plan is amended as follows:
4.2 Elective Portion. In addition to the shares of Stock received
pursuant to Section 4.1 hereof, for each calendar year commencing with the
calendar year beginning January 1, 1996, each Eligible Director may elect
to receive a whole number of shares of Stock equal in value (based on the
Share Value Price) to up to 50% of his or her cash compensation payable for
services as an Eligible Director (including services as non-executive
Chairman or Vice Chairman of the Board) during each such calendar year in
lieu of payment of such percentage of such cash compensation. Such shares
shall be delivered to each such director, in substantially equal
installments, on the Normal Stock Payment Dates, except to the extent that
a Deferral Election (as defined in Section 4.3 hereof) shall be in effect
with respect to such shares or that Section 4.6 hereof applies.
Provided, however, no shares shall be delivered to an Eligible
Director pursuant to the director's election hereunder for a period of six
months following the director's initial election hereunder, or any
subsequent change of such election hereunder, and the shares accrued during
such six month period shall be delivered on the Normal Stock Payment Date
next following expiration of the six month period and shall be valued at
the Closing Price on the last business day preceding such date. The value
of fractional shares shall be paid to the director in cash.
Section 5 is added to the Plan as follows:
5. RESTRICTED STOCK UNITS
5.1 Awards. For each year beginning January 1, 1996, each Eligible
Director who as of such date is not entitled to receive ten years of
retirement benefits under the Company's Directors Retirement Plan (the
"Retirement Plan") following retirement from the Board shall be credited
with Restricted Stock Units ("Units") equal in value to 50% of the annual
Board retainer fee then in effect for an Eligible Director. Such Units
shall be credited to each such director, in substantially equal
installments, on the Normal Stock Payment Dates. Each Unit shall be valued
at the Share Value Price.
A-1
<PAGE> 31
An Eligible Director shall be entitled to be credited with such Units
(a) for ten years, (b) until the period during which the director is
credited with such Units when combined with the period for which the
director is entitled to receive benefits under the Retirement Plan is equal
to ten years or (c) until the director's retirement from the Board,
whichever first occurs.
5.2 Committee Chairs. For each year beginning January 1, 1996 during
which an Eligible Director serves as chair of a regular committee of the
Board, such director shall be credited with Units equal in value to 10% of
the annual Board retainer fee then in effect for an Eligible Director. Such
Units shall be credited to each such director, in substantially equal
installments, on the Normal Stock Payment Dates. Each Unit shall be valued
at the Share Value Price.
5.3 Distribution. Following the director's retirement from the Board,
the value of the Units credited to the director shall be distributed to the
director in shares of Stock pursuant to the election of the director.
The director shall elect that distribution be in a lump sum or in
equal annual installments (not exceeding ten), with the lump sum or first
installment to be distributed on the tenth day of the calendar year
immediately following the year in which the director ceases to be a
director of the Company; provided, however, that the foregoing shall be
subject to Section 5.6 hereof. Installments subsequent to the first
installment shall be distributed on the tenth day of each succeeding
calendar year until all of the director's Units shall have been
distributed.
In the event the director should die before all of the director's
Units have been distributed, the balance of the Units shall be distributed
in a lump sum to the beneficiary or beneficiaries designated in writing by
the director, or if no designation has been made, to the estate of the
director.
5.4 Dividend Equivalents. Units shall be credited with Dividend
Equivalents. Dividend Equivalents shall be credited (i) as of the payment
date of such dividends, and (ii) only with respect to Units which were
credited as of a Normal Stock Payment Date, or into which Dividend
Equivalents were converted pursuant to the second paragraph of this Section
5.4, prior to the record date of the dividend. Units held pending
distribution shall continue to be credited with any Dividend Equivalents.
Dividend Equivalents so credited shall be converted into an additional
whole number of Units as of the payment date of the dividend (based on the
Closing Price on such payment date). Such Units shall thereafter be treated
in the same manner as any other Units under the Plan. Dividend Equivalents
resulting in fractional shares shall be held for the credit of the Eligible
Director until the next dividend payment date and shall be converted into
Units on such date. Any Dividend Equivalents not converted into Units shall
be paid in cash upon the final distribution of the director's Units.
5.5 Timing and Form of Elections. The election described in Section
5.3 hereof:
(a) shall be in the form of a document executed by the director and
filed with the Secretary of the Company,
(b) shall be made no later than 12 months prior to the director's
retirement from the Board, and
(c) shall become irrevocable 12 months prior to the director's
retirement from the Board.
If no election is made, the Units shall be distributed in a lump sum
on the tenth day of the calendar year immediately following the year in
which the director ceases to be a director of the Company.
5.6 Effect of Certain Events. Notwithstanding an election pursuant to
Section 5.3 hereof:
(a) If, as determined by the Board in its sole discretion, the
director (during or following his or her membership on the Board)
engaged in any activity or association in competition with or adverse or
detrimental to the interest of the Company (i) all of such director's
Units credited under Section 5.1 hereof, as well as Dividend Equivalents
and other Units resulting from such Units, shall be immediately
forfeited and (ii) all of such director's Units credited under Section
5.2 hereof, as
A-2
<PAGE> 32
well as Dividend Equivalents and other Units resulting from such Units,
shall be distributed immediately in the form of shares of Stock or cash.
(b) Upon the occurrence of a Change in Control, (i) all Units to
the extent credited prior to the Change in Control shall be distributed
immediately in the form of shares of Stock or their cash equivalent
value, and (ii) all Dividend Equivalents not yet converted into Units
shall be distributed immediately in cash.
The provisions of this Section 5.6 shall not apply to the extent
inconsistent with the requirements of Rule 16b-3, as the same may be
interpreted from time to time.
The foregoing amendments are subject to the requisite stockholder approval.
If such stockholder approval is not obtained, the amendments shall be of no
force and effect, and the Directors Stock Plan (as in effect without regard to
such amendments), and the Directors Retirement Plan, which was frozen subject to
stockholders approval of the above amendments, shall continue in effect.
A-3
<PAGE> 33
ANNEX B
PROPOSAL 3 -- AMENDMENTS TO 1992 STOCK OPTION PLAN RELATING TO
AUTHORITY OF COMPENSATION AND INCENTIVES COMMITTEE TO DETERMINE
POST-EMPLOYMENT EXERCISE PERIOD AND SIZE OF AWARDS
Subject to stockholder approval, effective January 1, 1996, the Kmart
Corporation 1992 Stock Option Plan (the "Plan") was amended by action of the
Board of Directors of Kmart Corporation (the "Company") on March 19, 1996 as
follows:
Section 5 B (c) (iii) of the Plan is amended as follows:
(iii) An option may be exercised by an optionee only while such
optionee is in the employ of the Company or a Subsidiary or within three
months thereafter (or such longer period thereafter as determined by the
Committee in its sole discretion), and only if any limitation upon the
right to exercise such option under paragraph (ii) of this Section 5B has
been removed or expired prior to termination of employment and exercise is
not otherwise precluded hereunder; provided, if at the date of termination
of employment the optionee has ten or more years of full-time employment
with the Company or a Subsidiary or if termination of employment results
from death or total and permanent disability, as defined in the Company's
Employee Pension Plan, such three-month period shall be extended to three
years. Employment with a Subsidiary shall be deemed terminated on the date
the former subsidiary ceases to be a Subsidiary of the Company.
Section 14 of the Plan is amended as follows:
14. Limitation on Size of Grants. No employee of the Company shall be
granted stock options under this Plan in any calendar year for more than
one million shares of Common Stock, subject to equitable adjustment for
certain corporate transactions as set forth in Section 6 hereof.
The foregoing amendments are subject to the requisite stockholder approval.
If such stockholder approval is not obtained, the amendments shall be of no
force and effect, and the 1992 Stock Option Plan (as in effect without regard to
such amendments) shall continue in effect.
B-1
<PAGE> 34
ANNEX C
INFORMATION CONCERNING THE DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
The following table sets forth the name and the present principal
occupation or employment (except with respect to the directors, whose principal
occupation is set forth in the Proxy Statement), and the name, principal
business and address of any corporation or other organization in which such
employment is carried on, of the directors and certain executive officers of the
Company who may assist in soliciting proxies from the Company's shareholders.
Unless otherwise indicated below, the principal business address of each such
person is 3100 West Big Beaver Road, Troy, Michigan 48084 and such person is an
employee of the Company. Directors are indicated with an asterisk.
<TABLE>
<CAPTION>
PRESENT OFFICE OR OTHER PRINCIPAL
NAME AND PRINCIPAL BUSINESS ADDRESS OCCUPATION OR EMPLOYMENT
- --------------------------------------------- ---------------------------------------------
<S> <C>
James B. Adamson*
Flagstar Companies, Inc.
203 East Main Street
Spartanburg, SC 29319
Lilyan H. Affinito*
599 Lexington Avenue
Suite 2300
New York, NY 10022
Stephen F. Bollenbach*
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
Joseph A. Califano, Jr.*
Center on Addiction and Substance Abuse at
Columbia University
152 West 57th St. - 12th Floor
New York, New York 10019
Richard G. Cline*
Hawthorne Investors, Inc.
201 Naperville Road
Wheaton, IL 60187
Willie D. Davis*
All Pro Broadcasting, Inc.
161 North LaBrea Avenue
Inglewood, California 90301
Enrique C. Falla*
The Dow Chemical Company
2030 Willard H. Dow Center
Midland, MI 48674
Joseph P. Flannery*
Uniroyal Holding, Inc.
70 Great Hill Road
Naugatuck, CT 06770
Floyd Hall*
Kmart Corporation
3100 West Big Beaver Road
Troy, MI 48084
David B. Harper*
Harper Management Co., Inc.
24 Beaver Drive
St. Louis, MO 63141
</TABLE>
C-1
<PAGE> 35
<TABLE>
<CAPTION>
PRESENT OFFICE OR OTHER PRINCIPAL
NAME AND PRINCIPAL BUSINESS ADDRESS OCCUPATION OR EMPLOYMENT
- --------------------------------------------- ---------------------------------------------
<S> <C>
Robert D. Kennedy*
39 Old Ridgebury Road
Danbury, CT 06817
F. James McDonald*
J. Richard Munro*
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Gloria M. Shatto*
Berry College
39 Mount Berry Station
Mount Berry, GA 30149
William P. Weber*
Texas Instruments Corporation
13510 North Central Expressway, MS236
Dallas, TX 75243
James O. Welch, Jr.*
200 Deforest Avenue
East Hanover, NJ 07936
Warren Flick................................. Executive Vice President and President and
General Merchandise Manager, U.S.
Kmart Stores
Ronald J. Floto.............................. Executive Vice President and President
Super Kmart Centers
Anthony N. Palizzi........................... Executive Vice President, General Counsel
of the Company
Marvin P. Rich............................... Executive Vice President, Strategic
Planning, Finance and Administration of the
Company
Martin Welch III............................. Senior Vice President and Chief Financial
Officer of the Company
Shawn M. Kahle............................... Vice President, Corporate Affairs
of the Company
Nancie W. LaDuke............................. Vice President and Secretary of the
Company
Robert Burton................................ Director, Investor Relations of the
Company
</TABLE>
C-2
<PAGE> 36
ANNEX D
SHARES HELD BY DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
AND CERTAIN TRANSACTIONS IN THE SECURITIES OF
KMART CORPORATION WITHIN THE PAST TWO YEARS
The shares of Common Stock held by the Company's directors are set forth in
the Proxy Statement. The following executive officers of the Company own the
following shares:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)
--------------------------------------------------------- ----------------------
<S> <C>
Robert M. Burton......................................... 1,200
Warren Flick............................................. 100,100
Ronald J. Floto.......................................... 3,386
Shawn M. Kahle........................................... 2,617(1)
Nancie W. LaDuke......................................... 27,703(1)
Anthony N. Palizzi....................................... 324,161(1)
Marvin P. Rich........................................... 17,092
Martin E. Welch III...................................... 8,696(2)
</TABLE>
- -------------------------
(1) Includes shares that can be acquired by exercise of stock options as
follows: Ms. Kahle -- 1,600 shares; Ms. LaDuke -- 22,500 shares; and Mr.
Palizzi -- 309,000 shares.
(2) Includes 8,196 shares elected to be purchased pursuant to Management Stock
Purchase Plan. Number of such shares is estimated based on market price of
Common Stock calculated pursuant to the Plan as of March 7, 1996. Actual
number of such shares will be determined based on market price of Common
Stock on June 12, 1996.
The following table sets forth information with respect to all purchases
and sales of shares of Common Stock of the Company by the directors and certain
executive officers of the Company during the past two years.
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASED (SOLD) DATE
---------------- --------
<S> <C> <C>
James B. Adamson................................. 1,000(1) 03/19/96
Lilyan H. Affinito............................... 32(2) 03/31/94
39(2) 06/30/94
1,574(3) 07/08/94
54(2) 09/30/94
69(2) 12/31/94
471(3) 03/31/95
83(2) 03/31/95
423(3) 06/30/95
39(2) 06/30/95
431(3) 09/30/95
44(2) 09/30/95
877(3) 12/31/95
86(2) 12/31/95
4,500(1) 03/12/96
Stephen H. Bollenbach............................ 10,000(1) 03/22/96
Joseph A. Califano, Jr. ......................... 13(2) 03/31/94
15(2) 06/30/94
629(3) 07/08/94
22(2) 09/30/94
</TABLE>
D-1
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASED (SOLD) DATE
---------------- --------
<S> <C> <C>
27(2) 12/31/94
188(3) 03/31/95
34(2) 03/31/95
169(3) 06/30/95
15(2) 06/30/95
172(3) 09/30/95
18(2) 09/30/95
350(3) 12/31/95
34(2) 12/31/95
Richard G. Cline................................. 5,000(1) 03/03/95
5,000(1) 03/24/95
112(3) 06/30/95
172(3) 09/30/95
350(3) 12/31/95
Willie D. Davis.................................. 20(2) 03/31/94
23(2) 06/30/94
944(3) 07/08/94
33(2) 09/30/94
41(2) 12/31/95
283(3) 03/31/95
50(2) 03/31/95
254(3) 06/30/95
23(2) 06/30/95
258(3) 09/30/95
26(2) 09/30/95
526(3) 12/31/95
53(2) 12/31/95
Enrique C. Falla................................. 944(3) 07/08/94
283(3) 03/31/95
254(3) 06/30/95
258(3) 09/30/95
526(3) 12/31/95
Joseph P. Flannery............................... 18(4) 03/14/94
27(2) 03/31/94
15.5(4) 06/13/94
33(2) 06/30/94
1.574(3) 07/08/94
18.085(4) 09/19/94
49(2) 09/30/94
14.248(4) 12/19/94
63(2) 12/31/94
12.246(4) 03/20/95
188(3) 03/31/95
76(2) 03/31/95
14.75(4) 06/15/95
169(3) 06/30/95
34(2) 06/30/95
14.375(4) 09/11/95
172(3) 09/30/95
35(2) 09/30/95
</TABLE>
D-2
<PAGE> 38
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASED (SOLD) DATE
---------------- --------
<S> <C> <C>
7.91(4) 12/14/95
350(3) 12/31/95
69(2) 12/31/95
Floyd Hall....................................... 500,000(5) 06/04/95
163,934(6) 03/07/96
David B. Harper.................................. 13(2) 03/31/94
15(2) 06/30/94
629(3) 07/08/94
22(2) 09/30/94
27(2) 12/31/94
188(3) 03/31/95
34(2) 03/31/95
169(3) 06/30/95
15(2) 06/30/95
172(3) 09/30/95
18(2) 09/30/95
350(3) 12/31/95
34(2) 12/31/95
Robert D. Kennedy................................ 10,000(1) 03/19/96
F. James McDonald................................ 1,574(3) 07/08/94
471(3) 03/31/95
423(3) 06/30/95
431(3) 09/30/95
877(3) 12/31/95
J. Richard Munro................................. 32(2) 03/31/94
39(2) 06/30/94
1,574(3) 07/08/94
54(2) 09/30/94
69(2) 12/31/94
471(3) 03/31/95
83(2) 03/31/95
423(3) 06/30/95
39(2) 06/30/95
431(3) 09/30/95
44(2) 09/30/95
877(3) 12/31/95
86(2) 12/31/95
Lawrence Perlman................................. 3,000(1) 05/23/95
112(3) 06/30/95
172(3) 09/30/95
350(3) 12/31/95
Gloria M. Shatto................................. 20(2) 03/31/94
23(2) 06/30/94
944(3) 07/08/94
33(2) 09/30/94
41(2) 12/31/94
283(3) 03/31/95
50(2) 03/31/95
254(3) 06/30/95
</TABLE>
D-3
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER OF SHARES
PURCHASED (SOLD) DATE
---------------- --------
<S> <C> <C>
23(2) 06/30/95
258(3) 09/30/95
26(2) 09/30/95
526(3) 12/31/95
53(2) 12/31/95
William P. Weber................................. 3,000(1) 03/19/96
6,800(1) 03/21/96
James O. Welch, Jr............................... 10,200(1) 06/05/95
1,550(1) 06/05/95
10,250(8) 06/05/95
86,000(7) 06/05/95
172(3) 09/30/95
18,000(1) 11/17/95
7,000(1) 11/17/95
350(3) 12/31/95
1,390(1) 03/12/96
880(1) 03/12/96
7,352(8) 03/12/96
27,086(7) 03/12/96
4,842(8) 03/15/96
21,237(7) 03/15/96
2,000(7) 03/26/96
Robert M. Burton................................. 300(1) 08/17/95
300(1) 10/17/95
600(1) 01/31/96
Warren Flick..................................... 100(1) 12/31/95
100,000(1) 03/08/96
Ronald J. Floto.................................. 3,386(6) 03/07/96
Shawn M. Kahle................................... 10(9) 01/31/94
14(9) 02/28/94
23(9) 03/31/94
15(9) 04/30/94
17(9) 05/30/94
16(9) 06/30/94
15(9) 07/31/94
15(9) 08/31/94
44(9) 02/06/96
44(9) 02/20/96
772(6) 03/07/96
32(9) 03/19/96
Nancie W. LaDuke................................. 283(6) 03/07/96
Anthony N. Palizzi............................... 815(6) 03/07/96
Marvin P. Rich................................... 161(9) 11/30/95
16,931(6) 03/07/96
Martin E. Welch III.............................. 500(1) 03/22/95
8,196(10) 03/07/96
</TABLE>
- -------------------------
(1) Purchase of shares.
D-4
<PAGE> 40
(2) Acquisition of shares through reinvestment of dividends under Directors
Stock Plan.
(3) Receipt of shares as payment for portion of directors fees under Directors
Stock Plan.
(4) Acquisition of shares through reinvestment of dividends.
(5) Acquisition of shares through grant of restricted stock.
(6) Purchase of shares pursuant to Management Stock Purchase Plan.
(7) Purchase of shares by trust of which director or wife is co-trustee or wife
is beneficiary.
(8) Purchase of shares by trust of which director is beneficiary.
(9) Acquisition of shares through Retirement Savings Plan.
(10) Includes 8,196 shares elected to be purchased pursuant to Management Stock
Purchase Plan. Number of such shares is estimated based on market price of
Common Stock calculated pursuant to the Plan as of March 7, 1996. Actual
number of such shares will be determined based on market price of Common
Stock on June 12, 1996.
Other than as disclosed in this Schedule or in the Proxy Statement, none of
the Company, any of its directors or its executive officers named in this
Schedule owns any securities of the Company or any subsidiary thereof,
beneficially or of record, has purchased or sold any of such securities within
the last two years, or is or was within the past year a party to any contract,
arrangement or understanding with any person with respect to any such
securities. Except as disclosed in this Schedule or in the Proxy Statement, the
knowledge of the Company, its directors and executive officers named in this
Schedule, none of their associates beneficially owns, directly or indirectly,
any securities of the Company.
Other than as disclosed in this Schedule or in the Proxy Statement, to the
knowledge of the Company, none of the Company, its directors or its executive
officers named in this Schedule has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be voted upon at
the Meeting.
Other than as disclosed in this Schedule or in the Proxy Statement, to the
knowledge of the Company, none of the Company, its directors or its executive
officers named in this Schedule is, or has been within the past year, a party to
any contract, arrangement or understanding with any person with respect to any
class of securities of the Company, including, but not limited to, joint
ventures, loan or option arrangements, puts or calls, guarantees against loss or
guarantees of profit, division of losses or profits, or the giving or
withholding of proxies, except that Mr. Rich was a party to an option contract
to purchase 250,000 shares of Common Stock at a purchase price of $15 per share.
The options expired January 19, 1996.
Other than as set forth in this Schedule or in the Proxy Statement, to the
knowledge of the Company, none of the Company, its directors or its executive
officers named in this Schedule, or any of their associates, has had or will
have a direct or indirect material interest in any transaction or series of
transactions since the beginning of the Company's last fiscal year or any
currently proposed transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party in which the amount
involved exceeds $60,000.
Other than as set forth in this Schedule or in the Proxy Statement, to the
knowledge of the Company, none of the Company, its directors or executive
officers named in this Schedule, or any of their associates, has any
arrangements or understandings with any person or persons with respect to any
future employment by the Company or its affiliates or with respect to any future
transactions to which the Company or any of its affiliates will or may be a
party.
D-5
<PAGE> 41
DIRECTIONS TO ANNUAL MEETING
MAP
(P) STOCKHOLDER PARKING WILL BE MADE AVAILABLE AT NO CHARGE AT THE PARKING
STRUCTURE LOCATED JUST WEST OF THE FISHER BUILDING UPON SUBMISSION OF THE
PARKING VOUCHER INCLUDED WITH THE PROXY MATERIALS.
THERE ARE TWO ENTRANCES TO THE PARKING STRUCTURE -- ONE FROM LOTHROP (THE
STREET ON THE NORTH SIDE OF THE FISHER BUILDING) AND ONE FROM EAST GRAND
BOULEVARD (THE STREET ON WHICH THE FISHER BUILDING FRONTS). PARKING IN THE
PARKING STRUCTURE WILL BE RESERVED EXCLUSIVELY FOR STOCKHOLDERS WITH PARKING
VOUCHERS.
(RECYCLE LOGO)
<PAGE> 42
DIRECTIONS TO ANNUAL MEETING
[MAP] ADMISSION
TICKET
TO KMART CORPORATION
1996 ANNUAL MEETING
OF STOCKHOLDERS
FOLD AND DETACH HERE
- ------------------------------------------------------------------------------
Stockholder parking will be made
available at no charge at the
parking structure located just
west of the Fisher Building upon
submission of this parking voucher.
STOCKHOLDER
There are two entrances to the [KMART LOGO] PARKING
parking structure - one from Lothrop VOUCHER
(the street on the north side of the
Fisher Building) and one from East
Grand Boulevard (the street on which
the Fisher Building fronts). Parking
in the parking structure will be
reserved exclusively for stockholders
with parking vouchers.
- ------------------------------------------------------------------------------
KMART CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1996
The signer(s) hereby appoint(s) Floyd Hall, Nancie W. LaDuke and Anthony
N. Palizzi, or any 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 Fisher Theatre in the Fisher
Building, 3011 West Grand Boulevard, Detroit, Michigan 48202, on Tuesday, May
21, 1996 at 10:00 a.m. (local time), and at all adjournments thereof, as
specified on the matters indicated on the reverse side hereof, and in their
discretion on any other business that may properly come before such Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
SEE
REVERSE SIDE
<PAGE> 43
<TABLE>
<S><C>
[KMART LOGO] Annual Meeting of Stockholders
10:00 a.m., Tuesday, May 21, 1996
Fisher Theatre
Fisher Building
3011 West Grand Boulevard
Detroit, Michigan 48202
(313) 872-1000
ADMISSION
TICKET
This Ticket is not Transferable.
Please retain this ticket for
admittance to the Annual Meeting.
FOLD AND DETACH HERE
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSALS
Proposal 1: To elect each of six directors for a term expiring in the year indicated:
1997 - James O. Welch, Jr.
1999 - James B. Adamson, Stephen F. Bollenbach, Floyd Hall, Robert D. Kennedy and William P. Weber
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 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 to request adoption of cumulative voting.
Proposal 7: To act upon a stockholder proposal to request elimination of the classification of the
Board of Directors.
Proposal 8: To act upon a stockholder proposal to request elimination of the current retirement plan
for non-employee directors.
Proposal 9: To act upon a stockholder proposal to request the Board to undertake a feasibility study
of a sale or merger of Kmart and other extraordinary initiatives.
FOLD AND DETACH HERE (SEE REVERSE SIDE FOR DIRECTIONS)
- -----------------------------------------------------------------------------------------------------------------------------------
/X/ PLEASE MARK
VOTES AS IN THIS EXAMPLE
The Board of Directors recommends a vote
The Board of Directors recommends a vote FOR Proposals 1, 2, 3 and 4. AGAINST Proposals 5, 6, 7, 8 and 9.
FOR AGAINST ABSTAIN
WITHHOLD 5. / / / / / /
FOR ALL FROM ALL FOR AGAINST ABSTAIN
1. Election of Directors / / / / Proposal 2 / / / / / / 6. / / / / / /
Proposal 3 / / / / / / 7. / / / / / /
________________________________________ Proposal 4 / / / / / / 8. / / / / / /
If you do not want your shares to be
voted "FOR" a particular nominee, write 9. / / / / / /
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, 3 AND 4 AND VOTED AGAINST
PROPOSALS 5, 6, 7, 8 AND 9 AS SET FORTH IN THE PROXY STATEMENT.
-----------------------------------------------------------------------
For Change of
Address Mark Here / / If You Plan To Attend Meeting, / /
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 this
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(s) __________________________ Date ______________________ Signature(s) ________________________ Date ____________________
Please Sign This Proxy as Name(s) Appear Above.
</TABLE>
