<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Kmart Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Kmart Corporation
- -------------------------------------------------------------------------------
Notice of 2000 Annual Meeting
of Stockholders
and Proxy Statement
April 13, 2000
Dear Kmart Stockholder:
It is my pleasure to invite you to join the Board of Directors and
management of Kmart Corporation at the Detroit Opera House located at 1526
Broadway, Detroit, Michigan for the Annual Meeting of Stockholders on Tuesday,
May 16, 2000 at 10:00 a.m.
The Notice of Meeting, Proxy Statement and Proxy Card accompanying this
letter describe in detail the matters to be acted upon at the meeting.
Stockholder parking will be made available at no charge at parking
structures in the vicinity of the Detroit Opera House. Directions to the
Annual Meeting, as well as your admission ticket to the Meeting and parking
voucher, are on the back cover of this Proxy Statement. Stockholders will need
to present the parking voucher to obtain parking at no charge and the
admission ticket to obtain admission to the Annual Meeting. If you plan to
attend the Meeting, please check the appropriate box on the Proxy Card.
For those stockholders of record with an e-mail account and access to the
Internet, we encourage you to access http://www.eproxyvote.com/km to vote your
shares via the Internet, and to access http://www.econsent.com/km to elect to
receive future annual reports, proxy and other materials via the Internet. For
stockholders who own their shares through a broker or other institution, check
with your broker to see if you will be able to vote and receive future
materials via the Internet. This electronic means of communication is quick
and convenient and can result in substantial savings to your Company in terms
of printing and distribution costs.
It is important that your shares be represented at the Meeting regardless of
the number that you may hold. Whether or not you plan to attend the Meeting,
please vote your shares either by returning the attached Proxy Card or voting
by telephone or Internet as soon as possible. (See page 2 of this Proxy
Statement or the attached Proxy Card for instructions on voting by telephone
or Internet.) This will not prevent you from voting your shares in person at
the Meeting before voting closes, if you wish to do so.
We hope that you will be able to attend the Meeting and look forward to
seeing you on May 16.
Sincerely,
/s/ Floyd Hall
Floyd Hall
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
Kmart Corporation
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
TO THE STOCKHOLDERS OF
KMART CORPORATION
The 2000 Annual Meeting of Stockholders of Kmart Corporation will be held at
the Detroit Opera House, 1526 Broadway, Detroit, Michigan on Tuesday, May 16,
2000, beginning at 10 a.m. E.T., for the following purposes:
1. To elect five Class II directors for a term expiring in 2003 as set
forth in the accompanying Proxy Statement.
2. To increase the number of shares of Common Stock reserved for issuance
under the 1997 Long-Term Equity Compensation Plan.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the 2000 fiscal year.
4. To act upon a stockholder proposal, if presented at the Meeting, as
set forth in the accompanying Proxy Statement, concerning the elimination
of the classified Board of Directors.
5. To transact such other business as may properly come before the
Meeting or any adjournment of the Meeting.
Stockholders of record of Kmart Common Stock at the close of business on
March 17, 2000 are entitled to notice of and to vote at the Meeting or any
adjournment of the Meeting.
By order of the Board of Directors
/s/ Nancie W. LaDuke
Nancie W. LaDuke
Vice President and Secretary
Troy, Michigan
April 13, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
About the Meeting.................................................... 1
What is the purpose of the Annual Meeting?.......................... 1
Who is entitled to vote?............................................ 1
What constitutes a quorum?.......................................... 1
How do I vote?...................................................... 1
Can I vote by telephone or Internet?................................ 2
Can I elect to receive future proxy and other materials via
Internet?.......................................................... 2
Can I change my vote after I submit my proxy?....................... 2
Will my vote be kept confidential?.................................. 2
How do I vote my shares held in the Kmart Stock Direct Plan
or in a Kmart employee stock plan?................................. 2
What are the Board's recommendations?............................... 3
What vote is required to approve each item?......................... 3
Stock Ownership...................................................... 4
Who are the largest owners of the Company's Common Stock?........... 4
How many shares of Common Stock do the Company's directors and
executive officers own?............................................ 5
Legal Proceedings/Transactions with Management...................... 6
Proposal 1 -- Election of Directors.................................. 6
Directors standing for election for terms expiring in 2003.......... 6
Directors continuing in office...................................... 7
How are directors compensated?...................................... 8
How often did the Board meet during fiscal 1999?.................... 9
What are the standing Committees of the Board?...................... 9
Board Committee Membership.......................................... 9
What are the functions of the standing Board Committees?............ 9
Executive Compensation............................................... 10
Compensation and Incentives Committee Report on Executive
Compensation....................................................... 10
What is the Company's philosophy of executive compensation?........ 10
How were the Company's executive officers compensated in fiscal
1999?............................................................. 11
Base Salary........................................................ 11
Annual Incentive Bonus............................................. 11
Stock Purchases and Stock Options ................................. 12
How was the Company's CEO compensated in fiscal 1999?.............. 12
Executive Compensation Summary Table................................ 13
Option Grants in Fiscal Year 1999................................... 14
Option Exercises and Values for Fiscal Year 1999.................... 15
Pension Plans....................................................... 15
Employment and Severance Arrangements............................... 15
Stock Performance Graph.............................................. 16
Comparison of Cumulative Total Return/January 1995 to January 2000.. 16
Proposal 2 -- Amendment to 1997 Long-Term Equity Compensation Plan to
increase number of shares of Common Stock reserved for issuance
under Plan.......................................................... 16
Proposal 3 -- Ratification of Appointment of Independent
Accountants......................................................... 21
Proposal 4 -- Stockholder Proposal................................... 21
Corporate Governance................................................. 23
Guidelines on Significant Corporate Governance Issues............... 23
Selection and Composition of the Board............................. 23
Board Leadership................................................... 24
Board Relationship to Senior Management............................ 25
Meeting Procedures................................................. 26
Committee Matters.................................................. 26
Leadership Development............................................. 27
Other Business/Future Stockholder Proposals.......................... 27
Admission Ticket/Parking Voucher..................................... Back Cover
</TABLE>
<PAGE>
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
PROXY STATEMENT
----------------
This Proxy Statement contains information relating to the Annual Meeting of
Stockholders of Kmart Corporation, a Michigan corporation, to be held on
Tuesday, May 16, 2000, beginning at 10:00 a.m. E.T., at the Detroit Opera
House, 1526 Broadway, Detroit, Michigan, and at any adjournment of the
Meeting. The Proxy Statement and accompanying Proxy Card are first being
mailed to stockholders on or about April 13, 2000.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At the Company's Annual Meeting, stockholders will act upon the matters
outlined in the accompanying Notice of Annual Meeting, including the election
of directors, increasing the number of shares of Common Stock reserved for
issuance under the 1997 Long-Term Equity Compensation Plan, the ratification
of the Company's independent accountants and consideration of a stockholder
proposal. In addition, the Company's management will report on the performance
of the Company during fiscal 1999 and respond to questions from stockholders.
Who is entitled to vote?
Only stockholders of record of the Company's Common Stock, par value $1.00,
at the close of business on the record date, March 17, 2000, are entitled to
receive notice of the Annual Meeting and to vote the shares of Common Stock
that they held on that date at the Meeting or any adjournment of the Meeting.
Each outstanding share of Common Stock entitles its holder to cast one vote on
each matter to be voted upon.
What constitutes a quorum?
The presence at the Meeting, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding on the record date will
constitute a quorum, permitting the Meeting to conduct its business. As of the
record date, 481,396,436 shares of Common Stock of the Company were
outstanding. Proxies received but marked as abstentions and broker non-votes
will be included in the calculation of the number of shares considered to be
present at the Meeting for purposes of a quorum but will be disregarded in
tabulating the vote on the election of directors and the other proposals.
How do I vote?
If you are a registered stockholder (that is, if you hold your stock in your
own name), and you either complete and properly sign the accompanying Proxy
Card and return it to the Company's stock transfer agent, Fleet National Bank,
or vote via telephone or Internet as set forth in this Proxy Statement and on
the Proxy Card, it will be voted as you direct. If you attend the Meeting, you
may deliver your completed Proxy Card in person.
If your shares are held in "street name" and you either complete and
properly sign the Proxy Card provided to you by your broker or other nominee,
or vote via telephone or Internet as permitted by your broker or nominee, the
broker or nominee is required to vote your shares as you direct.
1
<PAGE>
Can I vote by telephone or Internet?
If you are a registered stockholder (that is, if you hold your stock in your
own name), you may vote by telephone or Internet as follows:
By telephone:If you have a touch-tone phone, call 1-877-PRX-VOTE (1-877-779-
8683) toll free or call collect at 1-201-536-8073. You will be
asked to enter the 14-digit Control Number located on your
Proxy Card. Then follow the instructions.
By Internet: If you have an e-mail account and Internet access, point your
browser to http://www.eproxyvote.com/km . You will be asked to
enter the 14-digit Control Number on your Proxy Card. Then
follow the instructions.
If your shares are held in "street name," you will need to contact your
broker or other nominee to determine whether you will be able to vote by
telephone or Internet.
This Proxy Statement and the 1999 Annual Report are also available via
Internet at: http://www.kmart.com/corp under Investor Relations.
Can I elect to receive future proxy and other materials via Internet?
You may elect to receive future proxy and other materials via Internet if
you have an e-mail account and Internet access. Simply access
http://www.econsent.com/km and then follow the instructions. You will be asked
to enter your Account Number, which appears on your Kmart Stock Direct
statements and on your Proxy Card. Your consent will remain in effect unless
it is withdrawn by contacting the stock transfer agent at: 1-800-336-6981;
P.O. Box 8038, Boston, MA 02266-8038; or http://www.equiserve.com.
Can I change my vote after I submit my proxy?
Yes. Even after you have submitted your Proxy, you may change your vote at
any time prior to the close of voting at the Meeting by filing with the
Secretary of the Company a notice of revocation or by submitting a duly
executed Proxy bearing a later date or by voting by telephone or Internet on a
later date.
Will my vote be kept confidential?
The Company has adopted a policy providing for confidential voting.
Stockholder votes will be tabulated by EquiServe Limited Partnership and,
subject to certain limited exceptions including a contested proxy
solicitation, how a particular stockholder votes will not be disclosed to the
Company prior to the final tabulation of the vote.
How do I vote my shares held in the Kmart Stock Direct Plan or in a Kmart
employee stock plan?
Effective February 1, 2000, Kmart Stock Direct, the Company's direct stock
purchase plan, replaced the Kmart Stock Purchase and Dividend Reinvestment
Plan.
If a stockholder is a participant in Kmart Stock Direct (the Stock Purchase
Plan), the Proxy Card will represent the number of full shares of Common Stock
in the participant's Stock Purchase Plan account on the record date (as well
as shares registered in the participant's name or held in a Kmart employee
stock plan). If the Proxy Card is not signed and returned (or the shares are
not voted electronically), the Stock Purchase Plan shares and the registered
shares will not be voted.
If a stockholder is a participant in the Kmart Retirement Savings Plan or
Deferred Compensation and Restoration Plan (the Plan(s)), the Proxy Card will
represent the number of full shares of Common Stock in the employee's Plan
account(s) on the record date (as well as shares registered in the
participant's name or held in
2
<PAGE>
the Stock Purchase Plan). The Proxy Card will serve as voting instructions to
the trustees of the Plans. If the Proxy Card is not signed and returned (or
the shares are not voted electronically), the Plan shares will be voted by
each Plan trustee in the same proportion that it votes Plan shares for which
it did receive timely voting instructions from other Plan participants.
What are the Board's recommendations?
Unless you give other instructions either via your Proxy Card or your
electronic vote, the persons named as proxy holders on the Proxy Card will
vote in accordance with the recommendations of the Board of Directors. The
Board's recommendation is set forth together with the description of each item
in this Proxy Statement. In summary, the Board recommends a vote:
.for election of the nominated slate of directors (see page 6)
.for increase of shares of Common Stock reserved for issuance under the
1997 Long-Term Equity Compensation Plan (page 16)
.for ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants (see page 21)
.against approval of the stockholder proposal (see pages 21-23)
With respect to any other matter that properly comes before the Meeting, the
proxy holders will vote in accordance with their judgment on such matter.
What vote is required to approve each item?
. Election of Directors. The affirmative vote of a plurality of the votes
cast at the Meeting is required for the election of directors. A properly
executed Proxy marked "Withhold Authority" with respect to the election of
one or more directors will not be voted with respect to the director(s)
indicated, but will be counted for purposes of determining whether there is
a quorum.
. Increase in Shares under 1997 Long-Term Equity Compensation Plan and
Ratification of Independent Accountants. The affirmative vote of a majority
of the votes cast by stockholders represented in person or by proxy and
entitled to vote on these proposals is required for approval. A properly
executed Proxy marked "Abstain" with respect to each of these proposals
will not be voted and will not be counted in determining the shares
necessary for approval.
. Elimination of Classified Board. The affirmative vote of the holders of
58% of the outstanding shares entitled to vote is required to approve the
proposed amendment of the Company's Articles of Incorporation to eliminate
the classified board. A properly executed Proxy marked "Abstain" with
respect to the proposal will have the same effect as a vote against the
proposal.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters, will not be counted in determining the number of shares necessary for
approval and, with respect to the proposal relating to the elimination of the
classified board, will have the same effect as a vote against the proposal.
3
<PAGE>
STOCK OWNERSHIP
Who are the largest owners of the Company's Common Stock?
The following table sets forth certain information concerning persons which,
to the knowledge of the Company, own more than 5% of the outstanding Common
Stock.
<TABLE>
<CAPTION>
Percent of
Common Stock as of
Name and Address Shares December 31, 1999
---------------- ------ ------------------
<S> <C> <C>
Barrow, Hanley, Mewhinney & Strauss, Inc........ 60,731,028 12.5%
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429(1)
Vanguard/Windsor Funds, Inc. -- Windsor II
Fund........................................... 41,622,500 8.6%
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600(2)
Dodge & Cox..................................... 34,663,010 7.1%
One Sansome Street, 35th Floor
San Francisco, California 94104(3)
Putnam Investments, Inc......................... 34,279,767 7.1%
One Post Office Square
Boston, Massachusetts 02109(4)
</TABLE>
- ----------------
(1) Information obtained from Schedule 13G as of December 31, 1999 filed with
the Securities and Exchange Commission ("SEC") by Barrow, Hanley,
Mewhinney & Strauss, Inc. ("BHMS"). BHMS is a registered investment
advisor which has the sole power to dispose or to direct the disposition
of all of the above shares and has the sole power to vote or to direct the
voting of 14,010,228 of the above shares and the shared power to vote or
to direct the voting of 46,720,800 of the shares.
(2) Information obtained from Schedule 13G as of December 31, 1999 filed with
the SEC by Vanguard/Windsor Funds, Inc. -- Windsor II Fund, which is a
registered investment company with the sole power to dispose or to direct
the disposition and to vote or to direct the voting of the above shares.
(3) Information obtained from Schedule 13G as of December 31, 1999 filed with
the SEC by Dodge & Cox. Dodge & Cox is a registered investment advisor
which has the sole power to dispose or to direct the disposition of all of
the above shares, has the sole power to vote or to direct the voting of
31,687,860 of the shares and has the shared power to vote or to direct the
voting of 313,000 of the shares.
(4) Information obtained from Schedule 13G as of December 31, 1999 filed with
the SEC by Putnam Investments, Inc., Marsh & McLennan Companies, Inc.,
Putnam Investment Management, Inc. and The Putnam Advisory Company, Inc.
Putnam Investments, Inc., a subsidiary of Marsh & McLennan Companies,
Inc., wholly owns two registered investment advisors, Putnam Investment
Management, Inc., which is the investment advisor to the Putnam family of
mutual funds, and the Putnam Advisory Company, Inc., which is the
investment advisor to Putnam's institutional clients. Putnam Investments,
Inc. has the shared power to dispose or to direct the disposition of
34,279,767 of the above shares and the shared power to vote or to direct
the voting of 747,584 of the shares. Putnam Investment Management Inc, has
the shared power to dispose or to direct the disposition of 33,253,318 of
the shares.The Putnam Advisory Company, Inc. has the shared power to
dispose or to direct the disposition of 1,026,449 of the shares and the
shared power to vote or to direct the voting of 747,584 of the shares.
4
<PAGE>
How many shares of Common Stock do the Company's directors and executive
officers own?
The following table shows the Common Stock ownership of the Company's
directors, the named executive officers and all of the directors and executive
officers of the Company as a group, in each case as of March 1, 2000 .
<TABLE>
<CAPTION>
Percent of
Name Shares Common Stock
---- ------ ------------
<S> <C> <C>
James B. Adamson(1)(2)................................. 26,043 *
Lilyan H. Affinito(1)(2)............................... 42,476 *
Stephen F. Bollenbach(1)(2)............................ 35,604 *
Michael Bozic(2)(4).................................... 275,870 *
Joseph A. Califano, Jr.(1)(2)(3)....................... 27,042 *
Richard G. Cline(1)(2)(4).............................. 46,235 *
Warren F. Cooper(2).................................... 344,595 *
Willie D. Davis(2)(4).................................. 17,610 *
Joseph P. Flannery(1)(2)............................... 25,595 *
Andrew A. Giancamilli(2)(3)............................ 855,029 *
Floyd Hall(2).......................................... 7,260,362 1.5%
Donald W. Keeble(2).................................... 697,587 *
Robert D. Kennedy(1)(2)(3)............................. 33,796 *
J. Richard Munro(1)(2)................................. 29,522 *
Robin B. Smith(1)(2)(4)................................ 20,236 *
Thomas T. Stallkamp(1)................................. 2,594 *
James O. Welch(1)(2)(4)(5)............................. 233,307 *
Directors and executive officers as a group
(30 persons)(1)-(5)................................... 11,146,055 2.3%
</TABLE>
* Except as noted, each director and executive officer owned less than 1% of
the outstanding shares of Common Stock.
- --------
(1) Includes restricted Common Stock units accrued under the Directors Stock
Plan as follows: Mr. Adamson-- 7,877 units; Ms. Affinito -- 9,353 units;
Mr. Bollenbach -- 7,657 units; Mr. Califano -- 8,031 units; Mr. Cline --
9,542 units; Mr. Flannery -- 1,515 units; Mr. Kennedy -- 7,877 units; Mr.
Munro-- 9,353 units; Ms. Smith -- 6,263 units; Mr. Stallkamp -- 797 units;
and Mr. Welch -- 8,031 units.
(2) Includes shares of Common Stock that can be acquired by exercise of stock
options within 60 days of March 1, 2000 as follows: Mr. Adamson -- 5,000
shares; Ms. Affinito -- 5,000 shares; Mr. Bollenbach -- 5,000 shares; Mr.
Bozic -- 100,001 shares; Mr. Califano -- 5,000 shares; Mr. Cline -- 10,000
shares; Mr. Cooper -- 153,334 shares; Mr. Davis -- 5,000 shares; Mr.
Flannery -- 10,000 shares; Mr. Giancamilli-- 529,071 shares; Mr. Hall --
5,725,590 shares; Mr. Keeble -- 456,667 shares; Mr. Kennedy -- 5,000
shares; Mr. Munro -- 5,000 shares; Ms. Smith -- 5,000 shares; and Mr.
Welch -- 5,000 shares.
(3) Includes shares of Common Stock that can be acquired by conversion of
Kmart Financing I Trust Convertible Preferred Stock as follows: Mr.
Califano -- 1,333 shares; Mr. Giancamilli -- 333 shares; Mr. Kennedy --
3,333 shares; and all directors and executive officers as a group -- 9,319
shares.
(4) Mr. Bozic may be deemed to share voting and investment power as to 363,669
shares of Common Stock owned by one or more of the MSDW Funds of which he
is a trustee. Mr. Cline may be deemed to share voting and investment power
as to 21,000 shares of Common Stock owned by one or more of the Northern
Funds of which he is a trustee and as to 57,300 shares of Common Stock
owned by one or more of the Northern Institutional Funds of which he is a
trustee. Mr. Davis may be deemed to share voting and investment power as
to 2,390,000 shares of Common Stock owned by one or more of the Strong
Funds of which he is a director. Ms. Smith may be deemed to share voting
and investment power as to 8,875,670 shares of Common Stock and 608,500
shares of Kmart Financing I Convertible Preferred Shares owned by one or
more of the Prudential Investments mutual funds of which she is a trustee.
5
<PAGE>
Mr. Welch may be deemed to share voting and investment power as to
47,971,239 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 60,187,878 shares of Common Stock, or 12.53%
of the Common Stock outstanding as of March 1, 2000, including 0.076% for
Mr. Bozic, 0.016% for Mr. Cline, 0.497% for Mr. Davis,1.971 % for
Ms. Smith, and 9.97% for Mr. Welch. Ms. Smith and, Messrs. Bozic, Cline,
Davis and Welch each disclaim beneficial ownership of such shares.
(5) Includes 166,260 shares of Common Stock held by trusts of which Mr. Welch
and/or his wife is a co-trustee.
Legal Proceedings / Transactions with Management
Mr. Bozic, who joined the Company as Vice Chairman on December 1, 1998, was
formerly Chairman of the Board, President and Chief Executive Officer of
Levitz Furniture Inc., which filed a voluntary petition under Chapter 11 of
the Federal Bankruptcy Code on September 5, 1997. Mr. Bozic resigned as an
officer of Levitz on November 20, 1998, and resigned from its Board of
Directors on April 8, 1999.
In 1996, the Company made an interest-free loan to Mr. Hall of $200,000 in
connection with his acquisition of a Michigan residence. The loan is secured
by a promissory note from Mr. Hall and is to be repaid to the Company, in the
event of a sale of the residence, from the sale proceeds. The loan was
outstanding throughout 1999.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Articles of Incorporation 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 13, as of May 16, 2000. 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.
Directors standing for election for terms expiring in 2003
In accordance with the recommendation of its Committee on Directors and
Corporate Governance, the Board has nominated Joseph A. Califano, Jr., J.
Richard Munro, Robin B. Smith, Thomas T. Stallkamp and James O. Welch for
election as Class II directors for a term expiring at the 2003 Annual Meeting
and until their successors are elected and qualified. All of the nominees are
presently directors of the Company whose terms expire at the 2000 Annual
Meeting.
Class II Directors. The following Class II directors are standing for
election.
JOSEPH A. CALIFANO, JR., 68
Chairman and President, The National Center on Addiction and Substance Abuse
at Columbia University, attorney, author and Adjunct Professor of Public
Health, College of Physicians and Surgeons of Columbia University and Columbia
University School of Public Health (health policy and management). Director of
Automatic Data Processing, Inc., Health Plan Services, Inc., True North
Communications, Inc. and Warnaco, Inc. Has served as a director of Kmart
Corporation since 1990.
6
<PAGE>
J. RICHARD MUNRO, 69
Former Co-Chairman of the Board and Co-Chief Executive Officer of Time Warner
Inc. (entertainment and communications). Previously served as Chairman of the
Board and Chief Executive Officer of Time Inc. (communications). Director of
Kellogg Company, Mobil Corporation and Sensormatic Electronic Corp. Has served
as a director of Kmart Corporation since 1990.
ROBIN B. SMITH, 60
Chairman and Chief Executive Officer of Publishers Clearing House
(distribution of publications). Previously served as President and Chief
Executive Officer of Publishers Clearing House. Director of BellSouth Corp.,
Springs Industries, Inc. and Texaco, Inc. Trustee of Prudential Investments
mutual funds. Has served as a director of Kmart Corporation since 1996.
THOMAS T. STALLKAMP, 53
Vice Chairman and Chief Executive Officer, MSX International (engineering and
specialized staffing services). Previously served as Vice Chairman and as
President of DaimlerChrysler Corporation and as President of Chrysler
Corporation. Director of Baxter International, Inc. Has served as a director
of Kmart Corporation since September, 1999.
JAMES O. WELCH, JR., 68
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 1995.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF MS. SMITH AND
MESSRS. CALIFANO, MUNRO, STALLKAMP AND WELCH AS CLASS II DIRECTORS.
Directors Continuing in Office
Class III Directors. The following Class III directors were elected at the
Company's 1998 Annual Meeting for terms expiring at the 2001 Annual Meeting.
LILYAN H. AFFINITO, 68
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., Jostens Inc. and KeySpan Energy. Has served as
a director of Kmart Corporation since 1990.
RICHARD G. CLINE, 65
Chairman, Hussmann International, Inc. (refrigerated merchandising equipment
and refrigeration systems). Also Chairman, Hawthorne Investors, Inc.
(management advisory services and private investments). Previously served as
Chairman and Chief Executive Officer and as Chairman, President and Chief
Executive Officer of NICOR, Inc. (natural gas distribution and containerized
shipping). Director of Hussmann International, Inc., Ryerson Tull, Inc. and
Whitman Corporation. Trustee of Northern Funds and Northern Institutional
Funds. Has served as a director of Kmart Corporation since 1995.
WILLIE D. DAVIS, 65
President of All Pro Broadcasting, Inc. (radio stations). Director of Alliance
Bank, Bassett Furniture Industries, Incorporated, Checkers, Inc., The Dow
Chemical Company, Johnson Controls, Inc., MGM Grand, Inc., Sara Lee
Corporation, Strong Funds and WICOR, Inc. Has served as a director of Kmart
Corporation since 1986.
7
<PAGE>
JOSEPH P. FLANNERY, 68
Chairman of the Board, President and Chief Executive Officer of Uniroyal
Holding, Inc. (investment management company). Director of Arvin Industries,
Inc., Ingersoll Rand Company, Newmont Mining Corporation and The Scotts
Company. Has served as a director of Kmart Corporation since 1985.
Class I Directors. The following Class I directors were elected at the
Company's 1999 Annual Meeting for terms expiring at the 2002 Annual Meeting.
JAMES B. ADAMSON, 52
Chairman and Chief Executive Officer, Advantica Restaurant Group (formerly
Flagstar Corporation) (food services and restaurant franchises). Previously
served as Chief Executive Officer, as Chief Operating Officer and as Retail
President of Burger King Corporation. Has served as a director of Kmart
Corporation since 1996.
STEPHEN F. BOLLENBACH, 57
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 Marriott Corporation. Director
of Catellus Development Corporation, Hilton Hotels Corporation, Hilton Group
PLC, Park Place Entertainment Corp., Spring Group PLC and Time Warner Inc. Has
served as a director of Kmart Corporation since 1996.
FLOYD HALL, 61
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, of Target Stores and of B. Dalton
Booksellers Inc. Director of American Eagle Funds, Inc. and Jundt Funds. Has
served as a director of Kmart Corporation since 1995.
ROBERT D. KENNEDY, 67
Former Chairman and Chief Executive Officer of Union Carbide Corporation
(chemicals and plastics manufacturer). Director of Chase Industries, Inc.,
International Paper, Inc., Sunoco, Inc. and Union Carbide Corporation. Has
served as a director of Kmart Corporation since 1996.
How are directors compensated?
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. Fifty percent (and at the election of the director, up to 100%) of
the annual retainer is paid in Common Stock in lieu of cash pursuant to the
Directors Stock Plan. In addition, under the Directors Stock Plan, restricted
stock units, which are distributed as shares of Common Stock upon termination
of Board service, are accrued for a period of time equal to the director's
Board service, but no more than ten years, in an amount equal to 50% of the
annual retainer, plus, for Committee chairpersons, an amount equal to 10% of
the annual retainer.
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
8
<PAGE>
amount equal to any dividends payable on such shares, which are converted on a
quarterly basis to additional shares.
Effective January 1, 1996, benefits under the Company's Directors Retirement
Plan were terminated with respect to new directors and the accrual of future
benefits for existing directors was terminated. Non-employee directors who
served on the Board prior to December 31, 1995 and who serve at least five
years are entitled to benefits under the Plan. Upon retirement from the Board,
such directors will receive an annual benefit equal to the annual retainer at
the time of retirement for a period equal to the director's accrued years
under the frozen Plan, not to exceed ten years. Ms. Affinito and Messrs.
Califano, Davis, Flannery and Munro have vested benefits under the frozen
Directors Retirement Plan.
Directors who are employees of the Company or its subsidiaries do not
receive the above compensation or benefits.
How often did the Board meet during fiscal 1999?
The Board of Directors met nine times during fiscal 1999. Each director
attended at least 86% of the Board and Committee meetings held while he or she
served as a director or member of the Committee.
What are the standing Committees of the Board?
The Board of Directors has the following standing Committees: Audit,
Executive, Compensation and Incentives, Finance and Committee on Directors and
Corporate Governance. Except for the Executive Committee, the Committees are
comprised solely of non-employee directors.
BOARD COMMITTEE MEMBERSHIP
<TABLE>
<CAPTION>
Compensation Committee
and on Directors/
Audit Incentives Executive Finance Corporate
Name Committee Committee Committee Committee Governance
---- --------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C>
James B. Adamson........ *
Lilyan H. Affinito...... x x x
Stephen F. Bollenbach... *
Joseph A. Califano, Jr.. x
Richard G. Cline........ x x x
Willie D. Davis......... x
Joseph P. Flannery...... x x x
Floyd Hall.............. *
Robert D. Kennedy....... *
J. Richard Munro........ x x x
Robin B. Smith.......... x *
Thomas T. Stallkamp..... x
James O. Welch, Jr...... x
</TABLE>
- --------
x Member
* Chairperson
What are the functions of the standing Board Committees?
Audit Committee. Recommends to the Board the selection of independent
accountants; approves the nature and scope of services performed by the
independent accountants and reviews the range of fees for such services;
9
<PAGE>
confers with the independent accountants and reviews results of their audits
and key accounting and/or reporting matters, reviews the Company's internal
audit, accounting and financial controls; and provides assistance to the Board
with respect to corporate and reporting practices of the Company. In fiscal
1999, the Audit Committee met six times.
Compensation and Incentives Committee. Determines the nature and amount of
compensation of the executive officers of the Company and its subsidiaries;
and administers the Company's Annual Incentive Bonus Plan, Management Deferred
Compensation and Restoration Plan, Non-Employee Directors Deferred
Compensation Plan and executive and non-employee director stock plans. The
Committee is assisted as needed by an independent compensation consultant
which reports directly to the Committee. In fiscal 1999, the Compensation and
Incentives Committee met five times.
Executive Committee. Exercises the power and authority of the Board as may
be necessary during the intervals between meetings of the Board, subject to
such limitations as are provided by law or by resolution of the Board. The
Executive Committee did not meet in fiscal 1999.
Finance Committee. Reviews and oversees corporate operating and financial
policies, procedures and plans; makes recommendations to the Board on dividend
policy, corporate financing, the issuance and sale of Company securities and
the investments of funds; and reviews and oversees the Employee Pension Plan
and Pension Fund and the Retirement Savings Plan/Profit Sharing Program and
Funds. In fiscal 1999, the Finance Committee met six times.
Committee on Directors and Corporate Governance. Recommends to the Board
nominees for election as directors. In performing this function, the Committee
considers nominees recommended by stockholders. Such recommendations 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 to serve, if
elected. In addition, the By-laws of the Company establish certain procedures
concerning stockholder nominations for election of directors. The By-laws
generally 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. In fiscal 1999,
the Committee on Directors and Corporate Governance met five times.
EXECUTIVE COMPENSATION
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 comprised of four independent, non-employee directors.
What is the Company's philosophy of executive compensation?
The Company's 1999 Compensation Program for executives consisted of the
following key elements:
. Base salary
. Performance-based annual incentive bonus
. Restricted stock purchases at an effective 20% discount
. Grants of stock options
The primary goal of the program is to assure that the compensation provided
to the Company's executives is tied to the Company's business strategies and
objectives, thereby aligning the financial interests of senior executives with
those of stockholders. Other objectives of the Company's compensation strategy
are to attract
10
<PAGE>
and retain the best possible executive talent, to motivate those executives to
obtain optimum performance for the Company, to link executive and stockholder
interests through equity based plans and to provide compensation that
recognizes individual contributions as well as overall business results.
On a regular and recurring basis, 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.
The Committee's policy with respect to each of the components of the
Company's executive compensation program is discussed below. Through these
programs, a significant portion of the Company's executive compensation is
linked to performance and the alignment of executive interests with those of
stockholders.
The Committee intends to maximize the performance-based components of
compensation paid to executive officers. However, the Committee believes that
the Company must attract, retain and reward the executive talent necessary to
maximize the return to stockholders and that the loss of a tax deduction under
federal tax law may be a necessary and desirable trade-off in certain
circumstances.
How were the Company's executive officers compensated in fiscal 1999?
Base Salary
Base salaries for the Company's executive officers are based on a structure
of graduated salary levels that are established by reference to several
commercially available executive compensation surveys in which the Company and
other major U.S. retailers participate. The range for each position consists
of minimum, mid-point and maximum salary levels. Generally, the salary goals
for executive officers were targeted at the median salary for comparable
positions within the companies participating in the surveys (unless an
employment agreement provided otherwise or as necessary to meet specific
competitive offers). Any annual salary adjustment, within each applicable
position/salary grade, is determined based on the performance of the
individual (including the achievement of annual objectives). The retail
companies included in the surveys 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. The Committee believes
that the means by which comparative salary levels are determined is
appropriate since they enable the Company's executive salary structure to
reflect the practices of other 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
In 1999, executive officers had an opportunity to earn annual incentive
bonuses based on performance against Company and business unit goals approved
by the Committee (adjusted for certain one time charges), as well as
individual goals approved and subsequently evaluated by the senior officer to
whom the executive officer reported (and in the case of the CEO, by the Board
of Directors).
Participants in the bonus program were assigned threshold, target and
maximum bonus levels, with funding depending on the level of achievement of
the applicable goals. With respect to the goals based on Company and business
unit financial results, funding of these bonus components ranged from zero if
achievement was below the threshold level of 80% of goal, and increasing
incrementally from 25% of the targeted bonus at 80% achievement of goal, to
100% of targeted bonus at 100% achievement of goal, to a maximum of 225% of
the targeted bonus at achievement of 130% of goal or greater. The funding of
the bonus component based on personal goals ranged from zero to 225% of
targeted bonus depending on the evaluation of the executive officer's
achievement of such goals.
The 1999 targeted bonus opportunity for each executive officer was based on
a percentage of annual base salary-- with the largest targeted bonus
opportunity being granted to the CEO and the targeted bonus opportunity
granted to other executive officers decreasing incrementally based on their
position/salary grade. Generally, the
11
<PAGE>
on-plan incentive bonus for executive officers was targeted at the median
bonus for comparable positions within the companies participating in the above
described executive compensation surveys (unless an employment agreement
provided otherwise or as necessary to meet specific competitive offers).
Stock Purchases and Stock Options
The Company's long-term incentive compensation for executive officers and
other key executives consisted of purchases of restricted shares under the
Management Stock Purchase Plan and grants of stock options under the 1992
Stock Option and 1997 Long-Term Equity Compensation Plans. All of these plans
were approved by stockholders.
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 provides for the use of any annual incentive
bonus earned by executive officers and other executive participants under the
Annual Incentive Bonus Plan, which was approved by stockholders, to be used to
purchase shares of Common Stock at an effective 20% discount, with 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 annual bonus to purchase such
restricted shares, but in no event less than 20%.
The Company's Stock Option Plans also enable executive officers and other
key executives to develop and maintain a substantial stock ownership position
in the Company's Common Stock, and create a direct link between executive
compensation and stockholder return. Under the Stock Option Plans, options for
Common Stock were granted in 1999 to more than 3,100 executives.
Generally, the 1999 stock option grants for executive officers, other than
the CEO, were developed using industry accepted stock option valuation and
pricing models. Grants ranged from 50% to 235% of the applicable salary range
midpoint depending on position and salary grade, and were targeted at the 75th
percentile of grant levels for comparable positions at the companies
participating in the above described executive compensation surveys (unless an
employment agreement provided otherwise, a specific competitive offer was met
or the Committee determined otherwise based on its own assessment of the
situation).
Stock options were granted with an exercise price equal to the market price
of the Common Stock on the date of grant, will expire after ten years and will
vest over a three year period at the rate of one-third of the shares per year.
How was the Company's CEO compensated in fiscal 1999?
Mr. Hall's 1999 cash compensation included a base salary of $1,375,000 which
approximated the median salary of the other CEOs of companies participating in
the above described executive compensation surveys. Mr. Hall's bonus payout
for 1999 was $1,305,800 as a result of the Company's attaining its 1999
financial goals and Mr. Hall's achievement with respect to his individual
financial and personal performance objectives. In March 1999, the Committee
also granted Mr. Hall stock options to purchase 500,000 shares of Common
Stock. All of Mr. Hall's 1999 compensation was tax deductible by the Company
under Code Section 162(m) or was deferred until such time as it will be tax
deductible to the Company.
Compensation and Incentives
Committee
R. D. Kennedy, Chairperson
R. G. Cline
W. D. Davis
J. O. Welch, Jr.
The Compensation and Incentives Committee Report and the performance graph
included elsewhere in this Proxy Statement shall not be deemed filed or
incorporated by reference into any other 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.
12
<PAGE>
Executive Compensation Summary Table
The following table sets forth information concerning total compensation
paid to the Chief Executive Officer and the four other most highly compensated
executive officers of the Company who served in such capacities as of January
26, 2000 (the "named executive officers") for services rendered to the Company
during each of the last three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------------- --------------------------------------
No. of Stock Restricted
Name and Other Annual Options Stock All Other
Principal Position Year Salary(1) Bonus(2) Compensation(3) Granted(4) Awards(5) Compensation(6)
------------------ ---- --------- ------- -------------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
F. Hall................. 1999 $1,375,000 $1,305,800 $270,539 500,000 $ -0- $625,291
Chairman of the 1998 1,300,000 1,379,000 259,127 1,313,385 1,628,000 417,373
Board, President and 1997 1,200,000 1,815,600 262,544 1,000,000 2,729,250 235,240
Chief Executive Officer
A. A. Giancamilli....... 1999 687,500 500,000 -- 200,000 -0- 54,942
President and 1998 650,000 523,400 -- 150,000 814,000 41,466
General Merchandise 1997 485,835 442,700 -- 320,000 1,269,000 23,422
Manager, U. S.
Kmart Stores
M. Bozic................ 1999 637,500 385,000 91,015 100,000 -0- 12,120
Vice Chairman 1998 100,000 60,000 60,715 200,000 1,131,750 -0-
1997 -0- -0- -- -0- -0- -0-
D. W. Keeble............ 1999 498,750 290,000 -- 100,000 -0- 39,273
President, Store 1998 460,000 315,000 -- 80,000 895,400 38,852
Operations 1997 432,000 378,000 -- 70,000 606,500 32,002
W. F. Cooper............ 1999 423,750 253,000 -- 100,000 -0- 36,856
Executive Vice 1998 405,000 300,000 -- 75,000 732,600 34,657
President, Human 1997 380,000 266,500 -- 70,000 545,850 23,072
Resources and
Administration
</TABLE>
- --------
(1) At the election of the officers, up to 100% of salary may be deferred
pursuant to the Company's Management Deferred Compensation and Restoration
Plan.
(2) A portion of each named executive officer's 1999 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, as follows: Mr.
Hall -- $652,900 of bonus was used; the value of the stock was $816,125.
Mr. Giancamilli -- $100,000 of bonus was used; the value of the stock was
$125,000. Mr. Bozic -- $77,000 of bonus was used; the value of the stock
was $96,250. Mr. Keeble -- $58,000 of bonus was used; the value of the
stock was $72,500. Mr. Cooper -- $50,600 of bonus was used; the value of
the stock was $63,250. (Values are based on the market price of the stock
as of the date of issue.)
(3) The dollar amounts under "Other Annual Compensation" include:
Reimbursement of housing and living costs. Mr. Hall: 1999 -- $185,242
(including $48,022 in taxes in connection therewith); 1998 -- $159,988
(including $48,683 in taxes in connection therewith); 1997 -- $153,763
(including $46,339 in taxes in connection therewith). Non-business use of
Company plane. Mr. Hall: 1999 -- $68,528 (including $9,171 in taxes in
connection therewith); 1998 -- $80,087 (including $13,557 in taxes in
connection therewith); 1997 -- $97,251 (including $23,604 in taxes in
connection therewith). Mr. Giancamilli: 1999-$19,271 (including $5,531 in
taxes in connection therewith); 1998-$7,238 (including $2,014 in taxes in
connection therewith); 1997 - $2,317 (including $564 in taxes in
connection therewith); Mr. Bozic: 1999 - $1,152 (including $331 in taxes
in connection therewith); Mr. Keeble: 1999 - $5,837 (including $1,674 in
taxes in connection therewith); 1998 - $2,194 (including $371 in taxes in
connection therewith); Reimbursement of moving and temporary living
expenses. Mr. Bozic: 1999 -- $89,863 (including $34,300 in taxes in
connection therewith); 1998-- $60,715 (including $4,869 in taxes in
connection therewith). Except as noted, the cost to the Company for
perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the total payments reported in the Salary and Bonus
columns and, therefore, is not included.
(4) These stock options were granted under the 1992 Stock Option Plan and the
1997 Long-Term Equity Compensation Plan.
13
<PAGE>
(5) As of January 26, 2000, the number and value of all restricted stock
issued to the named executive officers were as follows: Mr. Hall --
1,335,612/$12,020,511; Mr. Giancamilli -- 190,397/$1,713,572; Mr. Bozic--
75,869/$682,822; Mr. Keeble -- 124,547/$1,120,926; and Mr. Cooper --
106,781/$961,032.
(6) The dollar amounts under "All Other Compensation" include: Life insurance
premiums. Mr. Hall: 1999 -- $13,098; 1998 -- $10,495; 1997 -- $10,286;
Mr. Giancamilli: 1999 -- $2,086; 1998 -- $911; 1997 -- $553; Mr. Bozic:
1999-- $3,182; Mr. Keeble: 1999 -- $2,204; 1998 -- $1,471; 1997 -- $857;
Mr. Cooper: 1999 -- $3,271; 1998 -- $1,732; 1997-- $886;. Employer
contributions under Company's Supplemental Retirement Savings Plan and/or
Deferred Compensation and Restoration Plan. Mr. Hall: 1999 -- $149,063;
1998 -- $138,374; 1997 -- $103,300; Mr. Giancamilli: 1999 -- $52,856;
1998 -- $40,555; 1997 -- $22,869; Mr. Bozic: 1999- $8,938; Mr. Keeble:
1999 -- $37,069; 1998-- $37,381; 1997 -- $31,145; Mr. Cooper: 1999 --
$33,585; 1998 -- $32,925; 1997 -- $22,186. Interest on compensation
mandatorily deferred so that it would be tax deductible to the Company
under Code Section 162(m). Mr. Hall: 1999--$463,120 (including $211,701
in above market interest); 1998 -- $268,504 (including $130,682 in above
market interest); 1997 -- $121,654 (including $56,802 in above market
interest).
Option Grants in Fiscal Year 1999
The following table shows all grants of options to each of the named
executive officers in fiscal 1999.
<TABLE>
<CAPTION>
% of Total
Options
Granted to
Number of Employees Hypothetical
Options in Fiscal Exercise Price Expiration Value at
Name Granted 1999 (1) Date (2) Grant (3)
---- --------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
F. Hall............ 500,000 7.84% $17.56 3/16/09 $4,031,498
A. A. Giancamilli.. 200,000 3.14 17.56 3/16/09 1,612,599
M. Bozic........... 100,000 1.57 17.56 3/16/09 806,300
D. W. Keeble....... 100,000 1.57 17.56 3/16/09 806,300
W. F. Cooper....... 100,000 1.57 17.56 3/16/09 806,300
</TABLE>
- --------
(1) All options were granted at a price equal to 100% of the market value of
the Common Stock on March 16, 1999, the date of grant. The exercise price
may be paid in cash, already owned shares or a combination of both.
(2) Options will become exercisable in three equal annual installments
commencing one year from date of grant.
(3) This column represents the estimated present value of the options granted
during fiscal 1999 on the date of grant using the Black-Scholes option
pricing model based upon the following assumptions: an estimated time
until exercise of 5 years; a 5-year stock price volatility rate of 0.449;
a risk-free interest rate of 4.81%; a dividend yield of 0.00%; 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 and interest rate.
14
<PAGE>
Option Exercises and Values for Fiscal Year 1999
The table below shows any options exercised by each of the named executive
officers in fiscal 1999 and the status of their options at January 26, 2000:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Value Number of Unexercised In-the-Money Options
Acquired on Realized upon Options at 1/26/00 at 1/26/00
Name Exercise Exercise Exercisable/Nonexercisable Exercisable/Nonexercisable
---- ----------- ------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
F. Hall................. -0- -0- 5,121,129/2,042,256 -0-/-0-
A. A. Giancamilli....... -0- -0- 392,404/ 406,667 $105,995/-0-
M. Bozic................ -0- -0- 66,667/ 233,333 -0-/-0-
D. W. Keeble............ -0- -0- 367,334/ 176,666 119,000/-0-
W. F. Cooper............ 100,000 $931,440 71,667/ 173,333 -0-/-0-
</TABLE>
Pension Plans
The accrual of benefits under the Company's tax-qualified Employee Pension
Plan and Supplemental Pension Benefit Plan was frozen as of January 31, 1996.
Therefore, service after January 31, 1996 is not recognized for benefit
accumulation purposes, but is recognized for vesting purposes. The Company's
Supplemental Pension Benefit Plan 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. Of the named executive officers,
only Mr. Keeble is eligible to receive benefits under the Company's frozen
Employee Pension and Supplemental Pension Benefit Plans. Mr. Keeble has 29
years of service under the Plans after age 21. His estimated accrued benefit
under the combined Plans and under the "final average compensation formula" is
$9,154 per month at age 65. This amount is based on the pension being paid
during his lifetime and would be reduced on an actuarially equivalent basis in
the event of a survivor benefit or optional form of payment. The "final
average compensation formula" is 1.50% of the average of the officer's best
five compensation years prior to January 31, 1996 multiplied by years of
service after age 21 and prior to January 31, 1996 up to 35 years minus 2% of
the applicable Social Security benefit for each year of service up to 30
years.
The Company has also adopted a Supplemental Executive Retirement Plan for
the purpose of providing 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 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.
Employment and Severance Arrangements
The Company has entered into employment or severance agreements with the
named executive officers. Mr. Hall's agreement, which has a term ending April
1, 2001, provides for an annual salary of at least $1 million and an annual
on-plan incentive bonus opportunity of at least $1 million based on the
attainment of performance goals. 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 of 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 of his employment agreement at the time of
termination, but in no event for less than 12 months nor more than 36 months.
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
named executive officers contain substantially similar severance provisions
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
15
<PAGE>
salary at the time of termination, plus, in some cases, 1/12th of 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. 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, Giancamilli,
Bozic, Keeble and Cooper were terminated in 2000, and severance payments were
due them under their severance agreements, the total payments due for the
entire severance period (assuming no reduction for other employment) would be
approximately $8,712,000.
Stock Performance Graph
COMPARISON OF CUMULATIVE TOTAL RETURN/JANUARY 1995 TO JANUARY 2000
TOTAL STOCKHOLDER RETURN
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 5-year
period commencing January 31, 1995.
[Performance Graph]
Base
Period
Company/Index Jan95 Jan96 Jan97 Jan98 Jan 99 Jan00
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KMART CORP 100 45.43 86.02 85.06 135.80 64.27
S&P 500 INDEX 100 138.67 175.19 222.33 294.57 325.05
RETAIL COMPOSITE 100 107.83 128.71 190.86 312.85 313.30
Assumes $100 invested on January 31, 1995 . Company's Common Stock
in the Company's Common Stock, . S&P 500 Composite Index
S&P 500 Composite Index and S&P . S&P Retail Stores Composite Index
Retail Stores Composite Index and that any
dividends are reinvested.
PROPOSAL 2 -- AMENDMENT TO 1997 LONG-TERM EQUITY COMPENSATION PLAN
TO INCREASE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE UNDER PLAN
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the 1997 Long-Term Equity Compensation Plan (the "Plan") to
increase the number of shares of Common Stock, par value $1.00, reserved for
issuance under the Plan by 24 million shares.
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The purpose of the Plan is to encourage key employees to own Common Stock of
the Company, thereby increasing their proprietary interest in the Company's
growth and success and more closely aligning their interests with those of the
Company's stockholders, as well as attracting and assuring the continuation of
employment of such key employees.
The Plan, which was originally approved by stockholders on May 20, 1997,
provides that officers, key employees and non-employee directors of the
Company and its subsidiaries may be granted stock options, stock appreciation
rights, restricted stock, performance units and performance shares. Under the
Plan, options to purchase Common Stock may be granted for a price not less
than the fair market value of the stock on the date of grant. The Plan is
designed to meet the requirements for tax deductibility under Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code") with respect to
certain compensation.
Twenty-four million shares of Common Stock were initially reserved for
issuance under the Plan. Share awards to date under the Plan have included
four annual grants of non-qualified stock options to a broad base of key
employees of the Company, grants of restricted stock to the Company's senior
management team and certain one-time grants of non-qualified stock options in
connection with the hiring and retention of officers and other key employees
of the Company. (See "Other Information" below for detailed description of
awards made under the Plan in 2000 to date.) As of March 15, 2000, there are
approximately 1.4 million shares of Common Stock which remain available for
grant under the Plan.
The Company is proposing that an additional 24 million shares of Common
Stock be reserved for issuance under the Plan. Such shares may either be
authorized and unissued shares or issued shares which have been reacquired by
the Company.
The Company has a long-standing executive stock option program pursuant to
which an annual grant of stock options is made to a broad base of key
employees of the Company. The size of these annual grants, to be made in
January of each year, generally ranges in the aggregate between five and ten
million shares of Common Stock. The Company has no current intent to change
its stock option program, and there are no current understandings with
employees or directors for the granting of options as to the additional
shares.
The following is a summary of the provisions of the Plan.
Plan Administration
The Plan is administered by the Compensation and Incentives Committee of the
Board, which is comprised of non-employee directors who meet the applicable
requirements of "non-employee director" under Rule 16b-3 of the Rules and
Regulations of the Securities and Exchange Commission and which has at least
three members who meet the applicable requirements of an "outside director"
under Code section 162(m), except that awards to non-employee directors are
administered by the Board of Directors. For convenience sake, all references
hereinafter to the Plan administrator will be to the Compensation and
Incentives Committee (the "Committee").
The Committee has the discretion, in accordance with the provisions of the
Plan, to determine to whom an award is granted, the size and type of award and
the terms and conditions of the award. In making such determinations, the
Committee may consider the position and responsibilities of the participant,
the nature and value to the Company of his or her services and
accomplishments, his or her present and potential contribution to the Company
and such other factors as may be deemed relevant. No award may be granted to a
participant who owns more than 5% of the outstanding Common Stock.
Shares Reserved for Issuance
With the proposed Plan amendment, the total number of shares of Common Stock
which may be subject to awards or be issued under the Plan will not exceed
48,000,000 shares of which no more than 10,000,000 shares may be issued as
restricted stock. The Plan permits adjustments to those numbers for events
like: a corporate capitalization such as a stock split; a corporate
transaction such as a merger, consolidation, separation, including
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a spin-off or other distribution of stock or property; any reorganization; or
a liquidation of the Company. The Plan also permits Common Stock not acquired
due to cancellation, expiration or termination of an award to become available
for reissuance. No awards may be granted under the Plan after March 17, 2007.
Awards granted prior thereto, however, may extend beyond such date, and the
provisions of the Plan will continue to apply thereto.
Stock Options
The Plan permits the Committee to grant awards of stock options to
participants and to determine the timing, amount and conditions of such
awards, provided that no individual can receive options for more than
1,000,000 shares of Common Stock in any fiscal year, subject to equitable
adjustment as set forth above. The exercise price for an option cannot be less
than 100% of the fair market value of the Common Stock underlying the option
at the time of grant. The Committee may grant either non-qualified stock
options or incentive stock options (as that term is defined in Code Section
422). Non-qualified stock options will be exercisable for a period of up to
ten years and two days from the date of grant. The Plan also permits the
Committee to require a period of employment or service before options will be
vested and to establish time periods for exercise in the event of termination
of employment or service. Except as otherwise provided by the Committee with
respect to non-qualified stock options, options cannot be transferred other
than by will, trust or the laws of descent and distribution.
Stock Appreciation Rights
The Plan permits the Committee to award stock appreciation rights ("SARs")
to Plan participants and to determine the timing, amount and conditions of
such awards, provided that no individual can receive more than 1,000,000 SARs
in any fiscal year, subject to equitable adjustment as set forth above. The
Committee may grant freestanding SARs or SARs in tandem with a related stock
option ("Tandem SAR") or a combination of both. The grant price of a
freestanding SAR is the fair market value of a share of Common Stock on the
date of grant and of a Tandem SAR is the exercise price of the related stock
option. No SAR will be exercisable after ten years and two days from the date
of grant. Upon exercise of each SAR, the holder is entitled to receive the
excess of the fair market value of the Common Stock on the date of exercise
over the option price. At the discretion of the Committee, the payment upon
exercise of a SAR may be in cash, in Common Stock or a combination of both.
The Plan also permits the Committee to determine the holder's right to
exercise SARs following termination of employment or service. Except as
otherwise provided by the Committee, SARs cannot be transferred other than by
will, trust or the laws of descent and distribution.
Restricted Stock
The Plan permits the Committee to grant awards of restricted stock to Plan
participants and to determine the timing, amount and conditions of such
awards, provided that no individual can receive more than 500,000 shares of
restricted stock in any fiscal year, subject to equitable adjustment as set
forth above. Shares awarded as restricted stock would be issued subject to
such restrictions as the Committee determines, including, without limitation,
restrictions: that require the participant's payment of a stipulated purchase
price; that are based upon the achievement of specific performance goals; or
that are based on time-based vesting and/or restrictions under applicable
federal or state securities laws. During the restriction period, the
participant is not entitled to delivery of the Common Stock, restrictions are
placed on the Common Stock's transferability and the Common Stock may be
forfeited in the event of termination of employment or service. A holder of
restricted stock will generally have the rights and privileges of a
stockholder including the right to vote the Common Stock. The Committee has
discretion to remove restrictions if it deems that to be appropriate in a
particular case. Upon expiration of the restriction period, the appropriate
number of shares of Common Stock will be issued to the participant.
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Performance Units/Shares
The Plan permits the Committee to grant awards of Performance Units and/or
Performance Shares to Plan participants based upon Company performance over a
period of time (a "Performance Period") determined by the Committee. At the
time the Committee establishes a Performance Period for a particular award, it
will also establish Company performance measures ("Performance Measures")
applicable to the award and targets that must be attained relative to those
measures. Performance Measures may be based on any of the following, alone or
in combination, as the Committee deems appropriate for the Company, its
subsidiaries, its affiliates and/or any subdivisions thereof: (i) return on
equity, assets, capital, sales or investment; (ii) pre-tax or after-tax
profit; (iii) implementation of processes or projects; (iv) expense reduction
levels; (v) changes in the market price of the Common Stock; (vi) total
shareholder return; and (vii) cash flow. Performance targets may include a
minimum, maximum and target level of performance, with the size of award based
on the level attained. Upon completion of a Performance Period, the Committee
will determine performance in relation to the performance targets for that
period. Following determination of the level of performance, the Committee may
in its discretion adjust upward or downward the payment which otherwise would
have been made except no upward adjustment will be made if to do so would
disqualify the payment as performance based compensation under Code Section
162(m). The Committee may also make adjustments in the terms and conditions
and the criteria included in awards in recognition of unusual or non-recurring
events whenever the Committee determines that such adjustments are appropriate
in order to prevent dilution or enlargement of the intended benefit of the
award except no such adjustment will be made if to do so would disqualify the
payment as performance based compensation under Code Section 162(m).
Awards may be paid in cash, Common Stock or a combination of both following
the end of the Performance Period. The aggregate maximum amount that can be
paid with respect to Performance Unit awards to any individual in respect of
any Performance Period under the Plan may not have a value in excess of the
value of 500,000 shares of Common Stock and the maximum number of Performance
Share awards that can be awarded to any individual in respect of any
Performance Period under the Plan may not exceed 500,000 shares of Common
Stock, subject to equitable adjustment as set forth above. The fair market
value of the Common Stock, will be determined by the average of the high and
low sales price of a share of Common Stock, sold regular way, on the last day
of the Performance Period, as reported on the Composite Transactions reporting
systems. In the event of termination of employment or service prior to
attaining the performance target, the Performance Units/Shares will be
forfeited unless the Committee in its discretion otherwise determines.
Change of Control
In the event of a change of control of the Company: (i) all options and SARs
then outstanding under the Plan will become fully exercisable and remain so
throughout their term; (ii) all restriction periods and non-performance based
terms and conditions imposed on restricted stock then outstanding will lapse;
and (iii) the target payout opportunities attainable under all outstanding
awards of performance based restricted stock, Performance Units and
Performance Shares will be deemed to have been fully earned for the entire
Performance Period(s) as of the effective date of the change of control. The
vesting of all awards denominated in Common Stock will be accelerated as of
the effective date of the change in control, and there will be paid out to
Plan participants within 30 days following the effective date of the change in
control, a pro rata number of shares of Common Stock (or their cash
equivalent) based upon an assumed achievement of all relevant targeted
performance goals and upon the length of time within the Performance Period
which has elapsed prior to the change in control. Awards denominated in cash
will be paid pro rata to Plan participants in cash within 30 days following
the effective date of the change in control, with the proration determined as
a function of the length of time within the Performance Period which has
elapsed prior to the change in control and based on an assumed achievement of
all relevant targeted performance goals.
A change of control occurs if: (i) any person becomes a beneficial owner of
33 percent or more of the combined voting power of the Company; (ii) the
Company's stockholders approve a definitive agreement to merge or consolidate
the Company with or into another corporation or to sell or otherwise dispose
of
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substantially all of its assets or to adopt a plan of liquidation; or (iii)
during any three consecutive years, there ceases to be a majority of the Board
of Directors comprised of individual who at the beginning of that period
constituted the Board (unless the election, or nomination for election, by the
stockholders, of each new director was approved by a vote of at least a
majority of the directors then still in office who were directors at the
beginning of such period or whose election or nomination was previously so
approved).
Plan Amendment or Termination
The Board may terminate or suspend the Plan in whole or in part at any time
with respect to all past and future grants and awards.
Current Federal Tax Consequences
A Plan participant who has been granted an incentive stock option will not
realize taxable income, and the Company will not be entitled to a deduction,
at the time of the grant or exercise of that option. If the optionee does not
dispose of the Common Stock acquired pursuant to an incentive stock option
within two years from the date of grant, or within one year of transfer of the
Common Stock to the optionee, any gain or loss realized on a subsequent
disposition will be treated as long-term capital gain or loss. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes. If these holding periods ae not satisfied, the optionee
will generally realize ordinary income at the time of disposition in an amount
equal to the lesser of (i) the excess of the fair market value of the Common
Stock on the date of exercise over the option price or (ii) the excess of the
amount realized upon disposition of the Common Stock, if any, over the option
price, and the Company will be entitled to a corresponding deduction.
A Plan participant will not realize taxable income at the time of grant of
an option that does not qualify as an incentive stock option, and the Company
will not be entitled to a deduction at that time. Upon exercise, however, of
that non-qualified option, the optionee will realize ordinary income in an
amount measured by the excess, if any, of the fair market value of the Common
Stock on the date of exercise over the option price, and the Company will be
entitled to a corresponding deduction. Upon a subsequent disposition of the
Common Stock, the optionee will realize short-term or long-term capital gain
or loss with the basis for computing such gain or loss equal to option price
plus the amount of ordinary income realized upon exercise.
A Plan participant who has been granted an SAR will not realize taxable
income, and the Company will not be entitled to a deduction, at the time of
the grant. Upon exercise, however, of that SAR, the holder will realize
ordinary income in an amount equal to any cash payment and/or the market value
of Common Stock distributed, and the Company will be entitled to a
corresponding deduction.
A Plan participant granted a restricted stock award will not realize taxable
income, and the Company will not be entitled to a deduction, at the time of
the grant, assuming that the restrictions constitute a substantial risk of
forfeiture for federal income tax purposes. Upon the vesting of that Common
Stock, the holder will realize ordinary income in an amount equal to the fair
market value of the Common Stock at the time less any amount paid for the
Common Stock, and the Company will generally be entitled to a corresponding
deduction. Dividends paid to the holder during the restriction period will
also be income to the holder, and the Company will generally be entitled to a
corresponding deduction.
A Plan participant granted Performance Units or Performance Shares will not
realize income, and the Company will not be entitled to a deduction, at the
time a Performance Period is established. The participant will have income at
the time a performance award is paid out if that payment is in cash, and the
Company will generally be entitled to a corresponding deduction. If a
performance award is paid in restricted stock, the tax impact will be that
discussed above with respect to restricted stock.
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With respect to any income tax withholding requirements imposed upon the
occurrence of a taxable event to a Plan participant, the Company can require
the payment of such tax liability in cash, or subject to the Committee's
approval, in Common Stock.
Other Information
On January 27, 2000, a broad-based grant of stock options for fiscal year
2000 for approximately ten million shares of Common Stock was made under the
Plan to 12 non-employee directors, 48 officers and over 3,100 other key
employees of the Company, including the following: F. Hall--820,000 shares;
A.A. Giancamilli--330,000 shares; M. Bozic--253,100 shares; D.W. Keeble--
209,000 shares; W.F. Cooper--176,000 shares; and non-officers as a group--6
million shares. All options were granted at a price of $8.84, the fair market
price on the date of grant.
On February 16, 2000, a grant of restricted stock was made under the Plan as
follows: F. Hall--175,000 shares; A.A. Giancamilli--125,000 shares; M. Bozic--
100,000 shares; D.W. Keeble--90,000 shares; W.F. Cooper--80,000 shares; and
officers as a group--570,000 shares.
The closing price of the Company's Common Stock reported on the New York
Exchange on March 31, 2000 was $9 11/16 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to stockholder ratification, the firm of PricewaterhouseCoopers LLP
has been appointed by the Board of Directors as independent accountants to
audit the Company's books and records for fiscal 2000, upon recommendation of
the Audit Committee. Representatives of PricewaterhouseCoopers 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 4--STOCKHOLDER PROPOSAL
The International Brotherhood of Teamsters, which states that it owns 290
shares of Common Stock, and the New York City Police Department Pension Fund,
which states that it owns 262,300 shares of Common Stock, have notified the
Company of their intention to present the following resolution for action at
the Annual Meeting of Stockholders. The text of the resolution and the
supporting statement submitted by the proponents are as follows:
"RESOLVED, that pursuant to Section 450.1611 of the Business Corporation Act
of the State of Michigan, the shareholders amend the Articles of Incorporation
of Kmart, Inc. (sic) to eliminate the classification of directors of the
Company. Article VII is amended as follows:
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Strike all but the first sentence of the first paragraph, and
substitute:
There shall only be one class of directors. All directors shall be
elected annually, at the annual meeting of stockholders, beginning
with the 2001 annual meeting of stockholders, except that any
director elected to a longer term prior to enactment of this
provision shall be permitted to serve out his term (unless removed
earlier for cause).
Strike the third paragraph in its entirety.
Strike from the fifth paragraph the following, final phrase, "and
such directors so elected shall not be divided into classes pursuant
to this article."
Stockholders' Supporting Statement
Kmart's board is divided into three classes of directors serving staggered
three-year terms. This means that an individual director faces elections only
once every three years, and shareholders only vote on roughly one-third of the
board each year.
Generally, shareholders have grown increasingly opposed to classified board.
In 1995, 60.5% of votes cast by Kmart's shareholders were cast for repeal of
the classified board. Kmart did not take any action. In 1996, a majority of
shareholders voting on the question again voted to repeal the classified
board. The company engaged in expensive litigation, which they eventually
lost, disputing the vote tally. They still chose to ignore shareholders wishes
and did not declassify the board of directors. For that reason, we believe
that shareholders must now demand, rather than urge, the repeal of the
classified board.
Although some companies continue to defend staggered boards as a guarantee
of continuity, we think a better way to insure continuity is through director
re-elections. When directors are performing well they routinely are reelected
with majorities over 95%.
A responsive, proactive and accountable board has never been more important
for Kmart shareholders.
Kmart has been included in this year's "Focus List" of underachieving
companies issued by the Council of Institutional Investors, its fifth
appearance since 1993.
In Fortune's Most Admired Companies survey, Kmart was the least admired
among all companies in the category of quality of products and services.
By adopting annual elections, Kmart can demonstrate its commitment to fuller
accountability to shareholders, accountability that honors shareholder
prerogatives.
We urge you to vote YES for this proposal."
Kmart Response
The Board of Directors Opposes Adoption of Proposal 4.
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 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.
The Board of Directors, as well as a majority of stockholders, have
evidenced their belief that a classified board is 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
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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, a classified board affords 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 addition, the Company's Shareholder Rights Plan (a so-called "poison
pill" plan) was redeemed following the 1995 Annual Meeting, and the Company,
to the extent allowable, has elected out of the protections offered by
Michigan anti-takeover statutes. Without a classified board, the Company will
be limited in its ability to negotiate and explore alternatives so as to
maximize stockholder value in the event of an unsolicited takeover. 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 stronger position to
negotiate a price premium than 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.
The Board of Directors, which consists almost exclusively of independent,
outside directors, is firmly 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.
In considering the proposal's assertion that a majority of shareholders
voting approved of declassifying the board in earlier elections, it is
important to note that this proposal has been previously presented by these
same proponents in 1996, 1998 and 1999, and all prior stockholder votes on the
proposal have been significantly less than the 58% of outstanding shares
required by the Company's Articles of Incorporation to eliminate the
classified board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
CORPORATE GOVERNANCE
Guidelines on Significant Corporate Governance Issues
These guidelines are being published in this Proxy Statement to inform
stockholders of the Board's current thinking with respect to selected
corporate governance issues considered to be of significance to stockholders.
The guidelines are only guidelines and not rigid rules. The Board will
continue to assess the appropriateness and efficacy of the guidelines and it
is likely that changes to the guidelines will occur from time to time.
Selection and Composition of the Board
1. Board Membership Criteria
The Committee on Directors and Corporate Governance periodically reviews (at
least annually) the mix of skills, experience levels and backgrounds of
present and potential Board members in light of anticipated needs.
2. Selection and Orientation
The Committee on Directors and Corporate Governance reviews qualifications
of potential candidates and recommends director nominees to the full Board.
The Committee on Directors and Corporate Governance may receive suggestions
for candidates from individual Board members, including the CEO, as well as
from stockholders of the Company. The Committee on Directors and Corporate
Governance has adopted a policy regarding factors to be considered in
selecting director nominees which include: the nominee's intelligence,
judgment, foresight, personal character, experience and achievements; the
overall composition of the Board;
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having a majority of independent directors on the Board; and representation of
a diversity of backgrounds and expertise which are most needed and beneficial
to the Board and the Company.
3. Extending the Invitation to a Potential Director to Join the Board
The invitation to join the Board should be extended by the Board itself or
by the Chairman of the Committee on Directors and Corporate Governance.
Board Leadership
4. Selection of Chairman and CEO
The Board should be free to make this choice any way that seems best for the
Company at a given point in time. Therefore, the Board does not have a policy,
one way or the other, on whether or not the role of the Chief Executive and
Chairman should be separate and, if it is to be separate, whether the Chairman
should be selected from the non-employee directors or be an employee.
5. Lead Director Concept
The Company has no "lead outside director." If a meeting of outside
directors concerns a Committee matter, the Committee chairperson would
normally chair the meeting. Any member of the Board may act to convene the
Board as necessary or desirable in the event the CEO is incapacitated.
6. Size of Board
As of the date of the 2000 Annual Meeting, there will be 13 Kmart Board
members. Management, the Board and the Committee on Directors and Corporate
Governance have indicated that a size of 10-13 members is about right.
7. Mix of Inside and Outside Directors
On matters of corporate governance, the practice is to involve the full
Board. The CEO is currently the only member of management on the Board. As of
the date of the 2000 Annual Meeting, there will be 12 outside directors. There
is no By-Law on the number of outside directors on the Board; however, the By-
Laws limit membership on the Audit Committee, Compensation and Incentives
Committee, Finance Committee and Committee on Directors and Corporate
Governance to outside directors only (Article IV, Sections 2, 3, 4 and 5).
8. Board Definition of What Constitutes Independence for Outside Directors
The Committee on Directors and Corporate Governance has adopted the
following definition of "independent director" for purposes of evaluating
director nominees: a director who is outside of management and free from any
relationship that, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment as a Board member including, without
limitation, any relationship that involves payments to a director from the
Company other than compensation for services as a director.
9. Directors Who Change Their Present Job Responsibilities
The Board has adopted a policy that any director who has a significant
change in occupation, retires from principal employment or is unavailable for
active participation due to health, change of residence or similar reason
(except for short duration) shall submit an offer of resignation from the
Board. Action on such conditional offer of resignation is by Board resolution,
upon recommendation of the Committee on Directors and Corporate Governance.
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10. Term Limits
The Board has adopted a policy that, unless it is determined in a particular
instance that a longer tenure is in the best interests of the Board or the
Company: (1) no outside director shall be nominated for re-election after
having served four 3-year terms (disregarding partial terms), (2) no director
shall be nominated for re-election at an annual stockholders meeting
coinciding with or next following his or her 70th birthday and (3) inside
directors (other than the CEO) shall retire on the date of their retirement or
termination of employment.
In 1999, because five directors would be scheduled to retire in 2001 under
applicable tenure policies, the Board has determined that it is in the best
interests of the Board and the Company to waive these policies with respect to
Messrs. Davis and Flannery for at least one year.
11. Retirement Age
Outside directors generally retire upon expiration of their term of office
following their 70th birthday.
12. Board Compensation Review
The Company's Executive Vice President of Human Resources monitors director
compensation in relation to other large U.S. companies on an ongoing basis and
advises the Compensation and Incentives Committee if changes in the company's
director compensation program are appropriate. The Committee is also assisted
as needed by an independent compensation consultant. Changes in director
compensation are approved by the Board, upon recommendation of the
Compensation and Incentives Committee.
13. Executive Sessions of Outside Directors
Outside directors meet separately, or with the CEO, from time to time, as
determined by the outside directors and/or CEO. This includes an evaluation of
CEO performance at least annually.
14. Assessing the Board's Performance
The Board regularly surveys its members to assess the Board's contribution
as a whole and to specifically review areas in which the Board and/or
management believes a better contribution could be made. The purpose is to
increase the effectiveness of the Board, not to target individual Board
members.
15. Board Interaction with Institutional Investors, the Press, Customers, etc.
The Board believes that management generally should speak for the Company.
While individual Board members may, from time to time, meet or otherwise
communicate with various constituencies that are involved with Kmart, but, it
is expected that Board members would do this with the knowledge of management
and, in most instances, at the request of management.
Board Relationship to Senior Management
16. Regular Attendance of Non-Directors at Board Meetings
The General Counsel and/or the Secretary are the only non-directors present
at each Board meeting for its duration. The officers who compose the Senior
Management Executive Committee attend all meetings for operational, financial
and related presentations. Other officers attend on an invitation basis for
presentations or other purposes.
17. Board Access to Senior Management
Board members have complete access to Kmart management. It is assumed that
Board members will use judgment to be sure that this contact is not
distracting to the Company and that such contact, if in writing, be copied to
the CEO. Furthermore, the Board encourages management to, from time to time,
bring managers into
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Board Meetings who: (a) can provide additional insight into the items being
discussed because of personal involvement in these areas, and/or (b) represent
managers with future potential that senior management believes should be given
exposure to the Board.
Meeting Procedures
18. Selection of Agenda Items for Board Meetings
The CEO, in consultation with other Board members or members of management,
establishes the agenda for each Board meeting. Each Board member is free to
suggest the inclusion of items on the agenda.
19. Board Materials Distributed in Advance
It is the sense of the Board that information and data that is important to
the Board's understanding of the business be distributed in writing to the
Board before the Board meets. Management will make every attempt to see that
this material is as brief as possible while still providing the desired
information.
20. Board Presentations
As a general rule, presentations on specific subjects should be sent to the
Board members in advance so that Board meeting time may be conserved and
discussion time focused on questions that the Board has about the material. On
those occasions in which the subject matter is too sensitive to put on paper,
the presentation will be discussed at the meeting.
Committee Matters
21. Number of Committees
There are currently five standing Board committees: Audit, Compensation and
Incentives, Executive, Finance, and Directors and Corporate Governance. The
Board may form, merge or dissolve a Committee as the Board determines,
depending on circumstances.
22. Committee Assignment and Rotation
The Board has adopted a three year tenure policy for Committee chairpersons
unless it is determined in a particular instance that a longer tenure is in
the best interests of the Board or the Company. Committee assignments are
evaluated and rotated as appropriate at five year intervals or sooner if there
is a change in Board membership. Under the Company's By-Laws, membership on
the Audit, Compensation and Incentives, Finance, and Directors and Corporate
Governance Committees is limited to outside directors only. All Committee
changes are approved by the Board, upon recommendation of the Committee on
Directors and Corporate Governance.
23. Frequency and Length of Committee Meetings
Committee meetings are normally held on the day preceding, or the morning
of, each regularly scheduled Board meeting. Committee meetings are scheduled a
year in advance. Changes to the schedule are made as needed by the Committee
chairperson in consultation with appropriate members of management.
24. Committee Agenda
The chairperson of the Committee in consultation with the appropriate
members of management will develop the Committee's agenda. A preliminary
annual schedule of Committee agenda subjects is issued each year. The final
agenda is set by the Committee chairperson in consultation with appropriate
members of management prior to each meeting.
26
<PAGE>
Leadership Development
25. Formal Evaluation of the Chief Executive Officer
The Compensation and Incentives Committee has adopted a policy of reviewing
the CEO's annual compensation and performance evaluation with all outside
directors. The outside directors then meet with the CEO to discuss the
evaluation. The evaluation is based on criteria such as performance of the
business, accomplishment of long-term strategic objectives, development of
management, etc. The evaluation is used by the Compensation and Incentives
Committee in the course of its deliberations when considering the compensation
of the CEO.
26. Succession Planning
The CEO meets annually with the outside directors to report on succession
planning.
27. Management Development
The CEO meets annually with the outside directors to report on management
development.
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, including any
proposal which was omitted in accordance with federal securities laws, it is
the intention of the persons named in the enclosed Proxy Card 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.
The entire cost of soliciting proxies will be borne by the Company. Proxies
may be solicited by mail, telecopy, telegraph, telex or Internet and by
directors, officers and regular employees of the Company. The Company has
retained D. F. King to assist in the distribution of proxy solicitation
materials at a cost of approximately $9,000 plus out of pocket expenses. The
Company will also reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses for forwarding
soliciting materials to the beneficial owners.
Pursuant to the General Rules under the Securities Exchange Act of 1934,
proposals of stockholders intended to be presented at the 2000 Annual Meeting
of Stockholders pursuant to SEC Rule 14a-8 must be received by the Secretary
of the Company on or before December 13, 2001 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
or any director nomination to be properly presented at a stockholders meeting.
Specifically, proposals of stockholders intended to be presented at the 2001
Annual Meeting (other than stockholder proposals set forth in the Company's
proxy statement) must be received by the Secretary of the Company on or before
February 15, 2001 unless the meeting is not held within eight days of May 16,
2001. In the latter case, if less than 100 days notice or public disclosure of
the Annual Meeting date is given, the proposal must be received by the
Secretary not later than the tenth day following the date notice or public
disclosure of the Meeting date is given to stockholders.
A copy of the Company's 1999 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, Investor Relations, 3100 West Big
Beaver Road, Troy, Michigan 48084-3163.
27
<PAGE>
ADMISSION TICKET
TO
KMART CORPORATION
ANNUAL MEETING
OF STOCKHOLDERS
May 16, 2000
CUT AND DETACH HERE
- --------------------------------------------------------------------------------
Detroit Opera House
1526 Broadway
Detroit, Michigan 48226
10:00 A.M., Tuesday, May 16, 2000
Stockholder parking will
be made available at no
charge at the following
parking structures upon
submission of this
parking voucher. (See map
above.) STOCKHOLDER
PARKING
.Detroit Opera House Garage VOUCHER
1426 Broadway
.Grand Circus Park Underground Garage
Woodward at Adams
3440-ps-00
[LOGO OF KMART]
<PAGE>
[Logo of Kmart]
DIRECTIONS TO KMART CORPORATION ANNUAL MEETING OF STOCKHOLDERS
Detroit Opera House
1526 Broadway
Detroit, Michigan 48226
10:00 A.M., E.T., Tuesday, May 16, 2000
- ---------------------------------------------------
Stockholder parking will be made available [MAP]
at no charge at the following parking structures
upon submission of the parking voucher on the back
of the proxy statement. (See map at right).
- -Detroit Opera House Garage
1426 Broadway
- -Grand Circus Park Underground Garage
Woodward at Adams
- --------------------------------------------------
THE ANNUAL MEETING ADMISSION TICKET AND PARKING VOUCHER
ARE ON THE BACK OF THE PROXY STATEMENT
- --------------------------------------------------------------------------------
KMART CORPORATION
PROXY/VOTING INSTRUCTIONS FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 16, 2000
------------------------------------------------------------
The signer(s) hereby appoint Floyd Hall and Nancie W. LaDuke, or either of
them, with power of substitution in each, to act as proxies to vote all Kmart
Corporation common stock which the signer(s) would be entitled to vote at the
Annual Meeting of Stockholders to be held at the Detroit Opera House, 1526
Broadway, Detroit, Michigan 48226, on Tuesday, May 16, 2000 at 10:00 A.M., E.T.,
and at all adjournments thereof, on the matters indicated on the reverse side
hereof and in their discretion on any other business that may properly come
before such Meeting. IF THIS CARD IS SIGNED AND RETURNED, OR RESPONSE IS BY
PHONE OR INTERNET, WITHOUT VOTING INSTRUCTIONS, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED FOR PROPOSALS 1,2 AND 3 AND VOTED AGAINST PROPOSAL 4.
Participants in the Kmart Retirement Savings and Deferred Compensation and
Restoration Plans may vote their proportionate share of Kmart Corporation common
stock in each Plan by signing and returning this card or by voting by phone or
Internet. IF THIS CARD IS SIGNED AND RETURNED, OR RESPONSE IS BY PHONE OR
INTERNET, WITHOUT VOTING INSTRUCTIONS, THE SHARES REPRESENTED BY THIS PROXY WILL
BE VOTED BY EACH PLAN TRUSTEE AS INDICATED IN THE PRECEDING PARAGRAPH. IF THIS
CARD IS NOT RETURNED OR IS RETURNED UNSIGNED, OR THE SHARES ARE NOT VOTED BY
PHONE OR INTERNET, THE SHARES WILL BE VOTED BY EACH PLAN TRUSTEE IN THE SAME
PROPORTION AS THE SHARES FOR WHICH VOTING INSTRUCTIONS ARE RECEIVED FROM OTHER
PARTICIPANTS IN EACH OF THE PLANS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THANK YOU FOR VOTING.
[Please See Reverse Side]
- --------------------------------------------------------------------------------
<PAGE>
[KMART LOGO]
VOTE BY TELEPHONE OR INTERNET
QUICK, EASY, COST-EFFECTIVE. AVAILABLE 24 HOURS A DAY,
7 DAYS/WEEK UNTIL 10 A.M., E.T., MAY 16, 2000
You may vote your Proxy 24 hours a day, 7 days a week, using either touch-tone
telephone or Internet.
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your Proxy Card.
VOTE BY PHONE: CALL TOLL-FREE VIA TOUCH-TONE TELEPHONE 1-877-PRX-VOTE
(1-877-779-8683) You will be asked to enter the 14-digit
CONTROL NUMBER located above your name and address in the
lower left of this form. Then simply follow the instructions.
OR
VOTE BY INTERNET: POINT YOUR BROWSER TO THE WEB ADDRESS:
HTTP://WWW.EPROXYVOTE.COM/KM
You will be asked to enter the 14-digit CONTROL NUMBER
located above your name and address in the lower left of this
form. Then simply follow the instructions. You may also
indicate if you would be interested in receiving future
materials via Internet.
OR
VOTE BY MAIL: Simply mark, sign and date your Proxy Card and return it in
the enclosed postage-paid envelope.
RECEIVE FUTURE MATERIALS VIA INTERNET
You may elect to receive future proxy and other materials via Internet if you
have an e-mail account and Internet access. To take advantage of this offer,
please access HTTP://WWW.ECONSENT.COM/KM and then simply follow the
instructions. You will be asked to enter the 9-digit Account Number located in
the second group of numbers appearing in the lower left of this form, just
beneath the perforation line. Your consent will remain in effect unless it is
withdrawn by calling, writing or e-mailing the Transfer Agent, EquiServe, at
1-800-336-6981; P.O. Box 8038, Boston, MA 02266-8038; or
HTTP://WWW.EQUISERVE.COM.
<TABLE>
<CAPTION>
<S> <C>
IF YOU ARE VOTING BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL BACK YOUR PROXY CARD.
DETACH HERE
- ------------------------------------------------------------------------------------------------------------------------------------
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1,2 AND 3. A VOTE AGAINST PROPOSAL 4
- ------------------------------------------------------------------------------------------------------------------------------------
WITHHOLD
1. Election of Directors FOR FROM ALL Proposal 2: FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
(01) Joseph A. Califano, Jr. [ ] [ ] Increase in Shares [ ] [ ] [ ] Proposal 4: [ ] [ ] [ ]
(02) J. Richard Munro Reserved under 1997 Elimination of
(03) Robin B. Smith Long-Term Equity Classified Board
(04) Thomas T. Stallkamp Compensation Plan
(05) James O. Welch, Jr.
Proposal 3: [ ] [ ] [ ]
Ratification of
Independent
Accountants
--------------------------------------------
If you do not wish your shares to be voted
"FOR" a particular nominee, write the
nominee(s) name above. Your shares will be
voted for the remaining nominee(s).
- ------------------------------------------------------------------------------------------------------------------------------------
If You Plan to Attend
Meeting, Mark Here. [ ]
For Change Of Address
Mark Here And Note At Left [ ]
------------------------------------
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 Date Signature Date
--------------------------------------- -------------- -------------------------------------- ---------
PLEASE SIGN THIS PROXY AS NAME(S) APPEAR ABOVE.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
