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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
X Filed by the registrant
Filed by a party other than the registrant
Check the appropriate box:
Preliminary proxy statement Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
X Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SEARS, ROEBUCK AND CO.
(Name of Registrant as Specified in Its charter)
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(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)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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Fee paid previously with preliminary materials.
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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:
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(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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SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 23, 2001
ALAN J. LACY
CHAIRMAN OF THE BOARD
Dear Shareholder:
I am pleased to invite you to attend the Company's 2001 Annual Meeting of
Shareholders on Thursday, May 10, 2001. The meeting will begin at 10:00 a.m. in
the Merchandise Review Center, Sears, Roebuck and Co., 3333 Beverly Road,
Hoffman Estates, Illinois. For your convenience, we are again broadcasting the
meeting live over the Internet at www.sears.com.
The Notice of Annual Meeting and Proxy Statement that follow this letter
describe the matters to be voted on during the meeting. Your proxy card and the
Company's 2000 Annual Report to shareholders are also enclosed.
Whether or not you plan to attend in person, please read the proxy
statement and vote your shares. Instructions for Internet and telephone voting
are attached to your proxy card. If you prefer, you can vote by mail by
completing your proxy card and returning it in the enclosed postage-paid
envelope.
Sincerely,
/s/ Alan J. Lacy
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SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, ILLINOIS 60179
March 23, 2001
ANASTASIA D. KELLY
Executive Vice President,
General Counsel
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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Sears, Roebuck and Co. will hold its 2001 Annual Meeting of Shareholders in
the Merchandise Review Center, Sears, Roebuck and Co., 3333 Beverly Road,
Hoffman Estates, Illinois, on Thursday, May 10, 2001. The meeting will begin at
10:00 a.m. At the meeting, we will:
o Elect four directors for terms expiring at the 2004 Annual Meeting of
Shareholders;
o Ratify the recommendation of the Audit Committee that Deloitte &
Touche LLP be appointed auditors of the Company for 2001;
o Vote on the proposed material terms of the performance goals under the
Annual Incentive Compensation Plan;
o Vote on the proposed material terms of the performance goals under the
Long-Term Incentive Compensation Plan;
o Vote on a shareholder proposal, if presented, concerning vendor
standards; and
o Consider any other business properly presented at the meeting.
By Order of the Board of Directors,
/s/ Anastasia D. Kelly
Anastasia D. Kelly
Executive Vice President, General Counsel
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO VOTE AS SOON AS
POSSIBLE BY INTERNET, TELEPHONE OR MAIL.
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Proxy Statement
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This proxy statement and the accompanying proxy card are being mailed to Sears
shareholders in connection with the solicitation of proxies by the Board of
Directors for the 2001 Annual Meeting of Shareholders. The mailing commenced on
or about March 30, 2001.
TABLE OF CONTENTS
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Questions and Answers...................................................................... 2
Item 1: Election of Directors.............................................................. 4
Board and Committee Information............................................................ 7
Report of the Audit Committee.............................................................. 8
Directors' Compensation and Benefits....................................................... 9
Beneficial Ownership....................................................................... 10
Executive Compensation..................................................................... 12
Termination of Employment and Change in Control Arrangements............................... 17
Report of the Compensation Committee....................................................... 19
Compensation Committee Interlocks and Insider Participation................................ 21
Performance Graph.......................................................................... 22
Item 2: Appointment of Auditors............................................................ 23
Item 3: Performance Goals - Annual Incentive Compensation Plan............................. 23
Item 4: Performance Goals - Long-Term Incentive Compensation Plan.......................... 23
Item 5: Shareholder Proposal Regarding Vendor Standards.................................... 25
Certain Transactions....................................................................... 27
Independent Accountant Fees................................................................ 27
Other Matters.............................................................................. 27
Appendix A.................................................................................A-1
Appendix B.................................................................................B-1
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Questions and Answers
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Q: WHO CAN VOTE?
A: You can vote if you were a shareholder at the close of business on the
record date, March 12, 2001. There were 330,725,342 common shares
outstanding on March 12, 2001.
Q: WHAT AM I VOTING ON?
A: You are voting on:
o The election of four nominees as directors. The Board of Directors'
nominees are Warren L. Batts, Donald J. Carty, Alan J. Lacy and Hugh
B. Price for terms that expire in 2004.
o The ratification of the appointment of Deloitte & Touche LLP as
independent auditors for 2001.
o The approval of the material terms of the performance goals under the
Annual Incentive Compensation Plan.
o The approval of the material terms of the performance goals under the
Long-Term Incentive Compensation Plan.
o A shareholder proposal concerning vendor standards, if presented at
the meeting.
The four nominees for director who receive the most votes will be elected.
For any other proposal to be approved, more votes must be cast for it than
against it.
Q: HOW WILL THE PROXIES VOTE ON ANY OTHER BUSINESS BROUGHT UP AT THE ANNUAL
MEETING?
A: By submitting your proxy card, you authorize the proxies to use their
judgment to determine how to vote on any other matter brought before the
annual meeting. The Company does not know of any other business to be
considered at the annual meeting.
The proxies' authority to vote according to their judgment applies only to
shares you own as the shareholder of record. You are a "shareholder of
record" if you hold your shares directly in your own name. If you hold your
shares indirectly in the name of a bank, broker or other nominee, you are
the beneficial owner of your shares as a "street-name shareholder."
Q: HOW DO I CAST MY VOTE?
A: If you hold your shares as a shareholder of record, you can vote in person
at the annual meeting or you can complete and submit a proxy by Internet,
telephone or mail. If you are a street-name shareholder, you will receive
instructions from your bank, broker or other nominee describing how to vote
your shares.
The enclosed proxy card contains instructions for Internet, telephone and
mail voting. Whichever method you use, the proxies identified on the back
of the proxy card will vote the shares of which you are the shareholder of
record in accordance with your instructions. If you submit a proxy card
without giving specific voting instructions, the proxies will vote your
shares as recommended by the Board of Directors.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSALS?
A: The Board recommends you vote for the election of each nominee, for the
ratification of the appointment of Deloitte & Touche LLP as independent
auditors for 2001 and for approval of the material terms of the performance
goals under the Annual Incentive Compensation Plan and Long-Term Incentive
Compensation Plan. The Board recommends you vote against the shareholder
proposal concerning vendor standards, if presented at the meeting.
Q: WHO WILL COUNT THE VOTE?
A: First Chicago Trust Company of New York, an independent tabulator, will
count the vote. Representatives of Seaway National Bank, an independent
bank, will act as the inspectors of election.
Q: IS MY VOTE CONFIDENTIAL?
A: All proxy cards (including those delivered by Internet or telephone) and
all vote tabulations that identify an individual shareholder are
confidential. Your vote will not be disclosed except:
o To allow First Chicago to tabulate the vote;
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o To allow Seaway National Bank to certify the results of the vote; and
o To meet applicable legal requirements.
First Chicago will transcribe any comments you write on your proxy card and
give them to the Secretary, along with your name and address and number of
shares voted. However, First Chicago will not disclose how the shares were
voted (except insofar as you have described your vote in your comment).
Q: WHAT IS A "QUORUM"?
A: A quorum is the number of shares that must be present to have the annual
meeting. The quorum requirement for the annual meeting is one-third of the
outstanding shares as of the record date, present in person or represented
by proxy. If you submit a valid proxy card or attend the annual meeting,
your shares will be counted to determine whether there is a quorum.
Abstentions and broker non-votes count toward the quorum. A "broker
non-vote" occurs when a nominee (such as a bank or broker) does not have
discretionary voting authority for shares held on behalf of a beneficial
owner and does not receive voting instructions from the beneficial owner by
ten days before the annual meeting.
Q: WILL BROKER NON-VOTES OR ABSTENTIONS AFFECT THE VOTING RESULTS?
A: No, they do not count as votes for or against a proposal. They do count for
quorum purposes.
Q: WHAT SHARES ARE INCLUDED ON MY PROXY CARD?
A: Your proxy card represents all shares registered to your account in the
same social security number and address, including any full and fractional
shares you own under the Sears, Roebuck and Co. Direct Purchase Stock Plan,
the Sears Associate Stock Ownership Plan or the Sears 401(k) Savings Plan
(the "401(k) Plan").
Q: HOW ARE SEARS COMMON SHARES IN THE 401(k) PLAN VOTED?
A: If you hold Sears common shares through the 401(k) Plan, your proxy card
will instruct State Street Bank and Trust Company, as trustee of the plan,
how to vote the shares allocated to your plan account. If you do not vote
by midnight of the night before the annual meeting (or you submit your
proxy card with an unclear voting designation, or with no voting
designation at all), then the plan trustee will vote the shares in your
account in proportion to the way the other 401(k) Plan participants vote
their shares. Your 401(k) Plan votes receive the same confidentiality as
all other votes.
Q: CAN I REVOKE MY PROXY CARD?
A: Yes, you can revoke your proxy card by:
o Submitting a new proxy card;
o Giving written notice before the meeting to the Secretary of the
Company, stating that you are revoking your proxy card; or
o Attending the meeting and voting your shares in person.
Unless you decide to vote your shares in person, you should revoke your
prior proxy card in the same way you initially submitted it -- that is, by
Internet, telephone or mail.
Sears 401(k) Plan share votes may only be revoked up to the 401(k) Plan
share voting deadline -- midnight of the night before the annual meeting.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares are probably registered in more than one account. You should
vote each proxy card you receive. Sears encourages you to consolidate all
your accounts by registering them in the same name, social security number
and address, which you can do by calling Sears Shareholder Services at
(800) 732-7780, selecting option #2, and then pressing "0" to speak to a
representative.
Q: HOW MANY VOTES CAN I CAST?
A: On all matters other than the election of directors, you are entitled to
one vote per share. For the election of directors, you can "cumulate" your
votes. This means that you can cast a number of votes equal to the number
of shares you own multiplied by the number of directors to be elected. For
example, if you own 100 common shares, you could cast 400 votes for the
election of directors (100 shares x 4 directors to be elected = 400 votes).
You could distribute those votes equally among the four nominees or you
could allocate some or all of your votes to one or two nominees and cast
few or no votes for the remaining nominees.
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Unless you specify otherwise, your proxy card will authorize the proxies in
their discretion to cumulate the votes you are entitled to cast and to
allocate those votes among the nominees for director. If you wish to
specify your cumulative vote and you are a shareholder of record, you must
mail in your proxy card. If you wish to specify your cumulative vote and
your shares are held in street name, you must follow the voting
instructions you receive from your bank, broker or other nominee.
Q: WHEN ARE SHAREHOLDER PROPOSALS DUE FOR THE 2002 ANNUAL MEETING OF
SHAREHOLDERS?
A: If you want to present a proposal from the floor at the 2002 annual
meeting, you must give the Company written notice of your proposal no
earlier than January 14, 2002 and no later than February 13, 2002. Your
notice should be sent to Secretary, Sears, Roebuck and Co., 3333 Beverly
Road, Hoffman Estates, IL 60179. Your notice must comply with the Company's
By-Laws, the relevant portion of which is attached as Appendix A to this
proxy statement. Among other things, the By-Laws provide that only
shareholders of record can present proposals at the meeting.
If you want your proposal to be considered for inclusion in next year's
proxy statement, you must submit the proposal in writing to the Secretary
so it is received at the above address by November 23, 2001.
Q: HOW IS THIS PROXY SOLICITATION BEING CONDUCTED?
A: Sears has hired D.F. King to assist in the distribution of proxy materials
and solicitation of votes for a fee of $16,500 plus out-of-pocket expenses.
Sears will reimburse brokerage houses and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and solicitation materials to shareholders. In addition, some
employees of the Company and its subsidiaries may solicit proxies. D.F.
King and employees of the Company may solicit proxies in person, by
telephone and by mail. No employee of the Company will receive special
compensation for these services, which the employees will perform as part
of their regular duties.
Q: CAN I ACCESS FUTURE ANNUAL MEETING MATERIALS THROUGH THE INTERNET RATHER
THAN RECEIVING THEM BY MAIL?
A: Yes. If you vote via the Internet, you can also sign up for electronic
delivery of future proxy materials. Just follow the instructions that
appear after you finish voting. You will receive an e-mail next year
notifying you of the web site containing the 2001 annual report and the
proxy statement for the 2002 annual meeting.
Item 1: Election of Directors
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Item 1 is the election of four directors to the Board of Directors. The Board
has three classes of as nearly equal size as possible. Directors hold office for
staggered terms of three years. One of the three classes is elected each year to
succeed the directors whose terms are expiring.
The Board of Directors expects all its nominees to be available for election. In
case any nominee is not available, the proxies can vote your shares for a
substitute if you have submitted your proxy card.
The terms of Class A directors Warren L. Batts and Hugh B. Price expire at the
2001 annual meeting. They have each been nominated to serve another term in
Class A expiring in 2004. Alan J. Lacy was elected to the Board effective
October 2000 and has been nominated to serve a term in Class A expiring in 2004.
The Board has nominated Donald J. Carty to serve in Class A for a term expiring
in 2004.
Arthur C. Martinez, whose term would have expired at the 2001 annual meeting,
retired from the Board on December 13, 2000. Richard C. Notebaert, formerly a
Class C director, resigned effective February 5, 2001.
The directors in Class B are serving terms that expire in 2002, and the
directors in Class C are serving terms that expire in 2003.
Information about each Class A nominee and about directors continuing in Classes
B and C follows.
THE BOARD RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE FOUR NOMINEES.
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NOMINEES FOR DIRECTOR
CLASS A: TERM EXPIRING AT THE 2004 ANNUAL MEETING OF SHAREHOLDERS
WARREN L. BATTS
Chairman and Chief Executive Officer of Tupperware Corporation (consumer
products) from 1996 until his retirement in 1997, and Chairman of Premark
International, Inc. (consumer and commercial products) from 1996 until his
retirement in 1997. Mr. Batts was Chairman and Chief Executive Officer of
Premark International, Inc. from 1986 to 1996. He is a director of The Allstate
Corporation, Cooper Industries, Inc. and Sprint Corporation. He is a trustee of
Children's Memorial Medical Center, The Art Institute of Chicago and
Northwestern University.
Director since 1986. Age 68.
DONALD J. CARTY
Chairman, President and Chief Executive Officer of AMR Corporation and American
Airlines, Inc. (air transportation) since 1998. Mr. Carty served as President of
AMR Airline Group and American Airlines from 1995 until 1998. He is a director
of Dell Computer Corporation and Brinker International, Inc. He is a trustee of
Southern Methodist University.
Nominee. Age 54.
ALAN J. LACY
Chairman of the Board of Sears, Roebuck and Co. since December 2000, President
and Chief Executive Officer since October 2000. Mr. Lacy was President,
Services, from 1999 to October 2000, President of Sears Credit from 1997 to 1999
(additionally Chief Financial Officer from 1998 to 1999) and Executive Vice
President and Chief Financial Officer from 1995 to 1997. He is a director of the
National Retail Federation and the Lyric Opera of Chicago.
Director since 2000. Age 47.
HUGH B. PRICE
President and Chief Executive Officer of the National Urban League (social
services and welfare) since 1994. Mr. Price is a director of Mayo Clinic
Foundation, Metropolitan Life Insurance Company and Verizon Communications Inc.
He is a trustee of the Committee for Economic Development and Educational
Testing Service.
Director since 1997. Age 59.
DIRECTORS WHOSE TERMS OF OFFICE CONTINUE
CLASS B: TERM EXPIRING AT THE 2002 ANNUAL MEETING OF SHAREHOLDERS
BRENDA C. BARNES
Interim President, Starwood Hotels and Resorts (hotels and leisure) from
November 1999 until March 2000. Ms. Barnes served as President and Chief
Executive Officer of PepsiCola North America (beverages) from 1996 until her
retirement in 1998. She served as Chief Operating Officer of PepsiCola North
America from 1994 to 1996. She is a director of Avon Products, Inc., Lucas
Digital LTD and Lucas Arts Entertainment Company LLC, The New York Times Company
and TyCom, Ltd. She is Chairman of the Board of Trustees of Augustana College.
Director since 1997. Age 47.
MICHAEL A. MILES
Chairman of the Board and Chief Executive Officer of Philip Morris Companies
Inc. (consumer products) from 1991 until his retirement in 1994. Mr. Miles is a
Special Limited Partner of Forstmann Little & Co. (investment firm) and a member
of its Advisory Board. He is a director of The Allstate Corporation, AMR Corp.,
AOL Time Warner Inc., Community Health Systems, Inc., Dell Computer Corp.,
Exult, Inc., The Interpublic Group of Companies and Morgan Stanley Dean Witter &
Co. He is a trustee of Northwestern University.
Director since 1992. Age 61.
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DOROTHY A. TERRELL
President, Services Group, and Senior Vice President, Worldwide Sales, of
Natural MicroSystems Corporation (telecommunications) since 1998. Ms. Terrell
served as President of SunExpress, Inc., an operating company of Sun
Microsystems, Inc., and as a Corporate Executive Officer of Sun Microsystems,
Inc. from 1991 to 1997. She is a director of General Mills, Inc. and Herman
Miller, Inc. She is a trustee of the National Housing Partnership Foundation.
Director since 1995. Age 55.
CLASS C: TERM EXPIRING AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS
HALL ADAMS, JR.
Chairman of the Board and Chief Executive Officer of Leo Burnett Company, Inc.
(advertising) from 1987 until his retirement in 1992. Mr. Adams is a director of
Moody's Corporation (formerly Dun & Bradstreet) and McDonald's Corporation. He
is a trustee of Rush-Presbyterian-St. Luke's Medical Center.
Director since 1993. Age 67.
JAMES R. CANTALUPO
Vice Chairman and President of McDonald's Corporation (restaurant chain) since
1999. Mr. Cantalupo served as Vice Chairman of McDonald's Corporation and
Chairman and Chief Executive Officer, McDonald's International, from 1998 to
1999 and as President and Chief Executive Officer, McDonald's International,
from 1991 to 1998. He is a director of McDonald's Corporation, Rohm & Haas Co.,
the Chicago Council of Foreign Relations and the Mid-America Committee. He is a
trustee of Ronald McDonald House Charities, the National Multiple Sclerosis
Society, Chicago Chapter, and a director of the International Federation of
Multiple Sclerosis Societies.
Director since 2000. Age 57.
W. JAMES FARRELL
Chairman and Chief Executive Officer of Illinois Tool Works Inc. (manufacturing
and marketing of engineered components) since 1996. Mr. Farrell is a director of
Illinois Tool Works Inc., The Allstate Corporation, The Quaker Oats Company and
The Federal Reserve Bank of Chicago. He is a trustee of the Chicago Symphony
Orchestra, Rush-Presbyterian-St. Luke's Medical Center and the Museum of Science
and Industry.
Director since 1999. Age 58.
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Board and Committee Information
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The Board of Directors and four committees of the Board govern Sears. During
2000, the Board met eight times. Directors discharge their responsibilities
throughout the year at Board and committee meetings and also through
considerable telephone contact and other communications with the Chairman and
other key executives, as well as with external advisors such as legal counsel,
outside auditors and investment bankers.
The average attendance at Board and committee meetings was 95% in 2000. No
director attended fewer than 75% of the meetings of the Board and of the
committees of which the director was a member in 2000 except Dorothy A. Terrell,
who was absent for one meeting and missed a second due to a death in her family.
The following table identifies the current membership of board committees and
states the number of committee meetings held during 2000. A summary of each
committee's functions follows the table.
DIRECTOR AUDIT COMPENSATION EXECUTIVE NOMINATING
-------- ----- ------------ --------- ----------
Hall Adams, Jr. X X
Brenda C. Barnes X * X X
Warren L. Batts X * X X
James R. Cantalupo X
W. James Farrell X X
Alan J. Lacy X *
Michael A. Miles X X X *
Hugh B. Price X X
Dorothy A. Terrell X X
No. of Meetings in 2000 6 7 0 5
* Committee Chair
AUDIT COMMITTEE
Assist the Board in monitoring:
o The integrity of the financial statements of the Company.
o The Company's system of internal control.
o The independence and performance of the Company's independent public
accountants.
o The compliance by the Company with legal and regulatory requirements.
All members of the Audit Committee are independent as defined in the applicable
NYSE listing standards.
COMPENSATION COMMITTEE
o Approve the compensation of the Chief Executive Officer and other officers
of the Company.
o Except as provided in specific plans or as resolved by the Board,
responsible for administration of all benefit plans, including stock option
plans, that affect officers' compensation.
EXECUTIVE COMMITTEE
o Perform certain Board duties between Board meetings, if necessary. (Did not
meet in 2000.)
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NOMINATING COMMITTEE
o Evaluate the performance of the Board of Directors and the Chairman and
Chief Executive Officer.
o Review the management organization of the Company and succession plans for
the Chairman and Chief Executive Officer.
o Make recommendations to the Board concerning the composition of the Board,
the compensation of directors, the election of executive officers, the
appointment of the Chairman for each committee of the Board, and the
procedures for shareholder voting.
o Review the Company's corporate governance guidelines.
You can recommend a director candidate to the Nominating Committee, and the
Committee will evaluate the candidate's qualifications. Alternatively, you can
nominate a candidate for election to the Board by complying with the nomination
procedures in the Company's By-Laws. If you want to submit a nomination, you
should review the By-Law requirements on nominations by shareholders, which are
included in the excerpt from the By-Laws that is attached in Appendix A to this
proxy statement. The Company must receive your nomination of a candidate for
director for the 2002 annual meeting no earlier than January 14, 2002 and no
later than February 13, 2002.
Report of the Audit Committee
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As described above, one of the Audit Committee's functions is to assist the
Board in monitoring the Company's financial reporting process. In fulfilling its
responsibilities, the Committee has:
o Reviewed and discussed the Company's audited financial statements with
management;
o Discussed with the independent auditors the matters required to be
discussed by Statements on Auditing Standard No. 61 (SAS 61);
o Received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1 and
discussed with the independent auditors their independence; and
o Considered whether the independent auditors' provision of services beyond
the review of the Company's quarterly and audit of the Company's annual
financial statements is compatible with maintaining such auditors'
independence.
Based on its reviews and discussions, and subject to the limitations on the
Audit Committee's role and responsibilities as described in its charter, the
Committee has recommended to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 2000 for filing with the SEC.
The Board has adopted a charter for the Committee, which charter is attached as
Appendix B to this proxy statement.
AUDIT COMMITTEE:
WARREN L. BATTS (CHAIRMAN)
HALL ADAMS, JR.
W. JAMES FARRELL
HUGH B. PRICE
DOROTHY A. TERRELL
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Directors' Compensation and Benefits
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In order to align directors' interests with shareholders' interests, directors'
compensation is paid in the form of deferred shares, stock options and cash.
o Each year, the Company grants to each director deferred shares valued at
approximately $30,000. The deferred shares vest over the twelve-month
period following the grant date. The directors receive their vested
deferred shares when they leave the Board.
o The Company annually grants each director an option to purchase Sears
common shares. The option is valued at approximately $30,000 and vests at
the next annual meeting. The option exercise price equals the fair market
value of the underlying shares on the grant date.
o The Company pays each director an annual $30,000 cash retainer in quarterly
installments. The Company pays the chairs of the Audit, Compensation and
Nominating Committees additional annual cash retainers of $5,000.
The actual number of deferred shares and option shares granted each year depends
on the price of Sears common shares on the grant date. On May 11, 2000, the
Company granted each director 763 deferred shares and an option to buy 2,288
shares at an exercise price of $39.32.
Non-employee directors who were first elected to the Board prior to December 31,
1995 will receive $30,000 annually after they retire from the Board pursuant to
the Non-Employee Director Retirement Plan. That plan was terminated in 1995.
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Beneficial Ownership
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
SEARS COMMON SUM OF COMMON SHARES
SEARS COMMON SHARE PLUS COMMON SHARE
NAME SHARES (A) EQUIVALENTS (B) EQUIVALENTS
---- ---------------- ---------------- ---------------------
Hall Adams, Jr. 12,112 (c) - 12,112
Brenda C. Barnes 8,273 (d) - 8,273
Warren L. Batts 12,712 (c) 30,233 42,945
James R. Cantalupo 1,695 (e) 682 2,377
W. James Farrell 2,843 (f) - 2,843
Alan J. Lacy 320,126 (g) - 320,126
Arthur C. Martinez 1,440,226 (h) - 1,440,226
Michael A. Miles 14,378 (c) 10,098 24,476
Hugh B. Price 7,533 (i) 2,861 10,394
Dorothy A. Terrell 12,162 (c) - 12,162
James R. Clifford 88,955 (j) - 88,955
Mark A. Cohen 91,588 (k) 9,412 101,000
Lyle G. Heidemann 110,111 (l) 12,402 122,513
Anastasia D. Kelly 117,875 (m) - 117,875
All directors and executive 2,746,424 (n) 97,145 2,843,569
officers as a group
NOTES TO SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS TABLE:
(a) Ownership is as of January 31, 2001 and includes:
o Shares in which the director or executive officer may be deemed to
have a beneficial interest (including options vesting by April 1,
2001); and
o Shares held as nontransferable restricted shares, which are subject to
forfeiture under certain circumstances.
Each director and executive officer has sole voting and investment power
with respect to the common shares listed on the table next to his or her
name, except that voting or investment power is shared as to 1,000 shares
of stock owned by Brenda C. Barnes.
(b) Common share equivalents represent fees deferred by directors and salary
and bonuses deferred by executive officers at the individual director's or
officer's request. Deferred amounts are converted into common share
equivalents, the value of which mirrors the value of Sears common shares.
Common share equivalents are paid out in cash when the director or officer
ceases to serve as a director or officer. Accordingly, the amounts
ultimately realized by the directors and officers will reflect changes in
the market value of Sears common shares from the date of deferral until the
date of payout.
(c) Includes 3,432 vested deferred shares and 7,580 shares subject to option.
(d) Includes 2,220 vested deferred shares and 4,053 shares subject to option.
(e) Includes 695 vested deferred shares.
(f) Includes 1,163 vested deferred shares and 1,680 shares subject to option.
(g) Includes 234,371 shares subject to options and 816 shares credited in the
401(k) Plan.
(h) Includes 1,322,740 shares subject to options and 1,445 shares credited in
the 401(k) Plan.
(i) Includes 2,491 vested deferred shares and 5,042 shares subject to option.
(j) Includes 75,403 shares subject to options and 1,178 shares credited in the
401(k) Plan.
(k) Includes 59,538 shares subject to options and 384 shares credited in the
401(k) Plan.
10
15
(l) Includes 75,589 shares subject to options and 3,888 shares credited in the
401(k) Plan.
(m) Includes 80,466 shares subject to options and 274 shares credited in the
401(k) Plan.
(n) Includes vested deferred shares, shares subject to options and shares
credited to executive officers in the 401(k) Plan.
To the knowledge of the Company, as of January 31, 2001 and excluding common
share equivalents, no director or executive officer (including each person
listed in the table) had a beneficial interest in more than 0.43% of Sears
outstanding common shares, and all directors and executive officers together
beneficially owned an aggregate of 0.82% of Sears outstanding common shares,
including their shares subject to options.
James R. Clifford, an executive officer of the Company, also owns 4,000 common
shares of Sears Canada Inc., a subsidiary of the Company.
SECURITY OWNERSHIP OF 5% SHAREHOLDERS
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNERSHIP: OF
NAME AND ADDRESS SEARS COMMON SHARES (A) CLASS
---------------- ----------------------- -------
State Street Bank and Trust Company
One International Place 33,895,610(b) 10.1%
Boston, Massachusetts 02110
AXA and related entities, as a group, and AXA 30,645,265(d) 9.2%
Financial, Inc.(c)
NOTES TO SECURITY OWNERSHIP OF 5% SHAREHOLDERS TABLE:
(a) Beneficial ownership is based on the latest Schedule 13G filed by the
shareholder for ownership as of December 31, 2000. Beneficial ownership may
include both voting power and investment power. Information is provided for
reporting purposes only and should not be construed as an admission of
actual beneficial ownership.
(b) The number shown includes 27,065,945 shares held by State Street Bank and
Trust Company, trustee, on behalf of participants in the 401(k) Plan.
(c) The address of AXA is 25, avenue Matignon, 75008 Paris, France; the address
of AXA Assurances I.A.R.D. Mutuelle, AXA Conseil Vie Assurance Mutuelle and
AXA Assurances Vie Mutuelle is 370, rue Saint Honore, 75001 Paris, France,
and of AXA Courtage Mutuelle is 26, rue Louis le Grand, 75002 Paris, France
(together, the "Mutuelles"); and the address of AXA Financial, Inc. ("AFI")
is 1290 Avenue of the Americas, New York, New York 10104.
(d) Based on the Schedule 13G covering these shares, the Mutuelles together
control AXA, which in turn owns a majority interest in AFI. The Mutuelles
and AXA, filing as a group, disclosed sole voting power as to 16,374,411
shares, shared voting power as to 3,498,269 shares, sole dispositive power
as to 30,576,865 shares and shared dispositive power as to 68,400 shares of
common stock. AFI disclosed sole voting power as to 16,292,461 shares,
shared voting power as to 3,498,269 shares, sole dispositive power as to
30,558,215 shares and shared dispositive power as to no shares of common
stock. A subsidiary of AFI, Alliance Capital Management L.P., acquired
30,555,415 of these shares for investment purposes on behalf of client
discretionary investment advisory accounts.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
SEC rules require the Company to disclose late filings of stock transaction
reports by its directors and executive officers. Based solely on a review of
reports filed by the Company on these individuals' behalf and written
representations from them that no other reports were required, all Section 16(a)
filing requirements were met during fiscal 2000 except for Hugh B. Price,
director (Form 5 reporting an open market sale not timely filed on Form 4), and
Kevin Keleghan, executive officer (Form 5 reporting ownership of shares not
previously filed on Form 3).
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Executive Compensation
--------------------------------------------------------------------------------
The following Summary Compensation Table shows compensation information for the
current Sears Chairman, President and Chief Executive Officer, Mr. Lacy, the
four other executive officers who were most highly compensated in 2000, and Mr.
Martinez, former Chairman, President and Chief Executive Officer, who retired in
December 2000 (the "Named Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- -------------------------- ---------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND BONUS COMPENSATION SHARE AWARDS OPTIONS PAYOUTS COMP.
PRINCIPAL POSITION YEAR SALARY ($) ($)(A) ($)(B) ($)(C) (#) ($) ($)(D)
------------------ ------ ---------- ---------- ------------ ------------ ------------ --------- ----------
Alan J. Lacy 2000 675,000 1,041,247 7,950 -- 603,750 -- 7,350
Chairman, President 1999 566,712 827,256 3,940 1,125,000(e) 40,000 174,130 7,000
& CEO 1998 488,329 613,176 3,000 1,226,563 53,000 -- 7,000
James R. Clifford 2000 415,000 552,654 4,125 -- 4,866 -- 7,350
President and Chief 1999 400,000 646,345 6,760 -- 60,000 682,500 7,000
Operating Officer,
Full-Line Stores
Mark A. Cohen 2000 550,000 732,433 45,842 -- 62,941(f) -- 7,350
President, 1999 500,068 623,009 7,898 1,125,000(e) 70,000 247,718 7,000
Softlines
Chief Marketing
Officer*
Lyle G. Heidemann 2000 400,000 532,678 4,763 381,300 25,304 -- 7,350
President, 1999 321,533 404,790 7,198 337,500 18,809 98,493 7,000
Hardlines
Anastasia D. Kelly 2000 475,000 632,556 -- 381,300 56,003(f) -- 7,350
Executive Vice 1999 386,849 581,954 -- 1,028,250 125,400 84,375 --
President, General
Counsel
Arthur C. Martinez 2000 1,200,000 2,350,050 295,668 -- 67,393 -- 9,060,000(g)
Former Chairman, 1999 1,200,000 2,198,550 262,851 -- 247,742 455,835 7,000
President & CEO 1998 1,150,000 980,088 245,987 -- 137,515 -- 7,000
* On January 22, 2001 Mr. Cohen was appointed Chairman and CEO of Sears
Canada Inc., a subsidiary of the Company.
NOTES TO SUMMARY COMPENSATION TABLE:
(a) The amounts in this column were all awarded under the Company's Annual
Incentive Compensation Plan, except Ms. Kelly's bonus for 1999 includes a
payment of $100,000 as a sign-on bonus, and Mr. Clifford's bonus for 1999
includes $261,686 paid in connection with his transfer from Sears Canada.
Pursuant to a deferred equity swap feature available to participants in the
Annual Incentive Compensation Plan, Mr. Lacy elected to swap and defer 20%
of his 2000 bonus ($208,249) for vested restricted common share equivalents
at the fair market value of $40.60 per share on March 9, 2001. In exchange
for electing to receive the equivalents in lieu of cash, Mr. Lacy received
a 20% premium ($41,650) on the portion of the bonus he elected to swap and
defer. He received the premium in restricted common share equivalents,
which will vest on March 9, 2004.
(b) Represents tax reimbursement payments and/or above-market interest on
deferred compensation. For Mr. Martinez, the figure also includes use of
corporate transportation and financial planning.
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(c) Restricted share awards are valued at the closing price of Sears common
shares on the date of grant. The Company pays dividends on restricted
shares at the same rate paid to all shareholders.
On December 29, 2000, the Named Officers owned the restricted shares set
forth in the table below. The market value is based on the closing price of
Sears common shares on December 29, 2000, which was $34.75.
Mr. Lacy Mr. Cohen Mr. Heidemann Ms. Kelly
-------- --------- ------------- ---------
Number of Shares 65,000 26,668 23,066 35,000
Market Value $2,258,750 $926,713 $801,544 $1,216,250
Mr. Clifford holds 10,000 restricted shares of Sears Canada Inc., which are
subject to performance vesting requirements. Based on the closing price of
Sears Canada Inc. common shares on December 29, 2000 and the exchange rate
on that date, the restricted shares had a market value of $141,200.
Restrictions on the following shares lapse less than three years from the
date of grant.
Number of
Name Securities Installment Vesting Dates
------------- ---------- -------------------------
Mr. Cohen 1,668 February 2, 2001
Mr. Heidemann 10,000 May 10, 2001, 2002, 2003
(in equal installments)
Ms. Kelly 25,000 March 1, 2001, 2002, 2004
(in equal installments)
Ms. Kelly 10,000 May 10, 2001, 2002, 2003
(in equal installments)
All other restricted stock awards reported in the first table vest three
years or more from the date of grant.
(d) Unless otherwise footnoted, these amounts represent the Company's matching
contributions under the 401(k) Plan and under the Company's nonqualified
Supplemental 401(k) Savings Plan.
(e) Restricted shares represented by this award will be forfeited to the extent
that the performance-based vesting requirements for the stock option grants
to Mr. Lacy in 1997 and to Mr. Cohen in 2000 are met (described under
"Performance-Based Restricted Shares" on page 19).
(f) A portion of these options are subject to both performance-based vesting
requirements and lapse of time vesting requirements. For a description of
the vesting requirements, see "Performance-Based Stock Options" on page 18.
(g) This total includes an additional salary and bonus lump sum paid and a
Long-Term Incentive Compensation Plan lump sum payable in connection with
Mr. Martinez' retirement agreement, which is further described on page 17.
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STOCK OPTIONS
The following table summarizes all stock options the Board granted to the Named
Officers during 2000. Individual grants are listed separately for each Named
Officer. The table also shows the estimated present value of each grant as of
the date the option was granted.
OPTION GRANTS IN 2000
INDIVIDUAL GRANTS(a)
-----------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES OR BASE EXPIRATION PRESENT
NAME GRANTED IN 2000 PRICE($) DATE VALUE($)(b)
---- ---------- ---------- -------- ---------- -----------
Alan J. Lacy 48,750 .76 31.07 02/01/10 546,000
555,000(c) 8.73 33.14 10/01/10 5,849,700
James R. Clifford 4,866 .07 31.07 02/01/10 54,499
Mark A. Cohen 12,941 .20 31.07 02/01/10 144,939
50,000(d) .78 56.13 03/09/10 600,500
Lyle G. Heidemann 25,304 .39 31.07 02/01/10 283,405
Anastasia D. Kelly 16,003 .25 31.07 02/01/10 179,234
40,000(d) .62 56.13 03/09/10 480,400
Arthur C. Martinez 67,393 1.06 31.07 02/01/10 754,802
NOTES TO OPTION GRANTS TABLE:
(a) Except as described in footnotes (c) and (d), all options have the following
material terms. Options become exercisable in three equal annual
installments beginning one year from the date of the grant. The option
exercise price equals the fair market value of a common share on the date of
grant. The options include tax withholding rights, which permit the option
holder to elect to have shares withheld to satisfy tax withholding
requirements. Excluding shares described in footnote (d), the option holder
can pay the option exercise price by tendering Sears common shares, which in
turn gives the option holder the right to purchase the same number of shares
tendered at a price equal to the fair market value on the exercise date. The
options include limited stock appreciation rights, which become exercisable
in certain cases upon a change in control. Upon retirement, options will
continue to vest but the number of shares subject to the option will be
reduced proportionately to reflect the retirement date.
(b) These values were calculated using the Black-Scholes option pricing model
applied as of the grant date. The assumptions used to calculate these values
were as follows: dividend yield 1.60%; expected volatility 31%; risk-free
interest rate 5.87%; and an option exercise date 8 years from the date of
grant (the expected life of the option). With respect to the grants
described in footnote (d), the Black-Scholes value was based on the above
assumptions without reduction to reflect the possibility that the
performance-based requirements will not be met. The actual value realized
may vary significantly from these estimated values and will ultimately
depend upon the excess of the stock price over the exercise price on the
date the option is exercised.
(c) This option has the features described in footnote (a), except that it vests
in two equal annual installments beginning four years from the date of grant
and does not have pro-rated vesting upon retirement.
(d) These options have the features described in footnote (a), except that they
are subject to performance-based vesting conditions described under
"Performance-Based Stock Options" on page 18, have no reload feature and
have an exercise price in excess of the market price on the date of grant.
14
19
The following table shows options that Named Officers exercised during 2000 and
the number of shares and the value of grants outstanding as of the end of the
fiscal year for each Named Officer.
AGGREGATED OPTION EXERCISES IN 2000 AND
FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/29/00 AT 12/29/00(A)
-------------------------------- ----------------------------
SHARES
ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE(#) REALIZED($) (# OF SHARES) (# OF SHARES) ($ VALUE) ($ VALUE)
----------------- ----------- ----------- -------------- --------------- ------------ --------------
Alan J. Lacy - - 187,120 748,085 1,000,730 1,072,950
James R. Clifford - - 51,790 56,857 81,747 17,907
Sears Canada
Inc. (b) 36,700 660,613 16,100 150,000 20,254 -
Mark A. Cohen - - 25,150 128,018 - 47,623
Lyle G. Heidemann 900 17,244 51,784 44,531 540,226 93,119
Anastasia D. Kelly - - 33,333 148,070 - 58,891
Arthur C. Martinez (c) - - 1,003,056 819,684 11,718,471 248,006
NOTES TO OPTION EXERCISE TABLE:
(a) The value of unexercised, in-the-money options is based on the market price
of a Sears common share of $34.75 as of the last trading day of the
Company's fiscal year.
(b) Mr. Clifford formerly served as an executive officer of Sears Canada Inc.,
a subsidiary of the Company. For options on shares of Sears Canada Inc.,
Value Realized was calculated based on the closing exchange rate on the
date of exercise. Other values have been converted from Canadian Dollars to
US Dollars at the conversion rate as of fiscal year end.
(c) In connection with Mr. Martinez' retirement, additional shares vested on
December 31, 2000. See page 17.
LONG-TERM INCENTIVE COMPENSATION PLAN
The performance criteria in the Company's Long-Term Incentive Compensation Plan
measure increases in associate satisfaction ("Work"), customer satisfaction
("Shop"), and the Company's financial performance ("Invest") over a three-year
performance cycle. The Company established goals for the performance measures at
the beginning of the current performance cycle (1999-2001). The actual payout
that executive officers will earn under the current cycle is based on the degree
to which the Company achieves those goals.
LONG-TERM INCENTIVE COMPENSATION PLAN
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK-PRICE-BASED PLANS(A)
OTHER PERIOD UNTIL ---------------------------------------------------------
NAME MATURATION OR PAYOUT THRESHOLD($) TARGET($) MAXIMUM($)
---- -------------------- ------------ --------- ------------
Alan J. Lacy 1/1/99 through 136,298 545,193 1,253,944
12/31/01
James R. Clifford 1/1/99 through 78,047 312,188 718,032
12/31/01
Mark A. Cohen 1/1/99 through 107,411 429,645 988,184
12/31/01
Lyle G. Heidemann 1/1/99 through 72,968 291,870 671,301
12/31/01
Anastasia D. Kelly 1/1/99 through 89,062 256,250 819,375
12/31/01
NOTE TO LONG-TERM INCENTIVE PLAN TABLE:
(a) The Company sets target awards for participants at the beginning of each
performance cycle, based on "work, shop and invest" goals and a percentage
of estimated aggregate salary during the performance cycle. Actual awards
are based on the achievement of goals and the actual salary the individual
earned during the cycle, to the extent permitted by appropriate tax
authorities. The maximum award for a participant is 150% of target. Under
the terms of Ms. Kelly's offer letter, she will receive no less than
$84,375 for the performance cycle.
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20
PENSION PLAN
The Company maintains basic and supplemental pension plans that, subject to
vesting conditions, provide retirement benefits for certain full-time and
part-time United States associates of the Company and its subsidiaries. Through
December 31, 1999, annual retirement benefits under the pension plans were based
upon credited years of service and the average annual cash compensation of the
associate's highest five successive calendar years of earnings out of the ten
years immediately preceding termination of employment ("final average annual
compensation").
In 1995, the Company changed the manner of computing retirement benefits for
years of service after January 1, 2000. Under the new formula, retirement
benefits are now based on the individual's cash compensation each year instead
of his or her final average annual compensation. "Cash compensation" for pension
plan purposes generally consists of salary and annual bonus. In the case of the
Named Officers, it generally consists of amounts paid as shown in the salary and
bonus columns in the Summary Compensation Table on page 12, excluding:
o Amounts earned before the Named Officer became eligible under the plan; and
o Bonuses and premiums described in footnote (a) to the table.
Benefits earned through December 31, 1988 are reduced by a portion of the
participant's estimated social security benefits.
As of December 31, 2000, and rounded to the nearest whole number, credited years
of service under the pension plans for the Named Officers were as follows: Alan
J. Lacy, 5, James R. Clifford, 12, Mark A. Cohen, 2, Lyle G. Heidemann, 33, and
Anastasia D. Kelly, 2.
o Ms. Kelly receives a 2-year-for-1-year service credit until age 60 under
the terms of her employment offer.
o Mr. Clifford will receive a 5 year service credit upon retirement on or
after age 55, death or total disability or a 10 year service credit upon
retirement on or after age 60 or involuntary termination without cause.
o Mr. Martinez has received a lump-sum payment of his non-qualified
supplemental pension plan benefits in connection with his retirement. See
page 17. He remains eligible to receive qualified pension plan benefits
based on approximately 7 years of service and plan-eligible compensation of
a maximum of $170,000 per year.
The Pension Plan Table below shows annual retirement benefits that would be
payable based upon various assumptions as to annual cash compensation and years
of service. It assumes retirement on December 31, 2001 at age 65. The table also
assumes that benefits will be payable over the participant's lifetime with no
survivor benefits.
PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------------------------------------------
REMUNERATION 5 10 15 25 35
------------ ------- -------- -------- --------- ---------
$1,000,000 $65,193 $125,844 $188,850 $320,797 $450,594
1,650,000 108,350 209,203 314,020 533,608 749,170
2,300,000 151,507 292,563 439,190 746,419 1,047,745
2,950,000 194,664 375,922 564,360 959,229 1,346,321
3,600,000 237,822 459,281 689,529 1,172,040 1,644,896
4,250,000 280,979 542,641 814,699 1,384,851 1,943,472
16
21
Termination of Employment and Change in Control Arrangements
--------------------------------------------------------------------------------
OFFICERS' AGREEMENTS
The Named Officers have entered into agreements with the Company that require
the Named Officers to maintain the confidentiality of information concerning the
Company's business. The agreements also prohibit the Named Officers from working
for a competitor of the Company or hiring any Sears employees for two years
after their employment with the Company ends (three years for Mr. Martinez).
Under the agreements, if the Company terminates a Named Officer's employment
without cause, the Named Officer (except for Mr. Martinez, whose arrangements
are described below) will receive the following benefits:
o Two years of salary continuation, which includes annual base pay and annual
bonus target calculated for the year the Named Officer's employment with
the Company ends;
o All Company benefits during the salary continuation period; and
o Continued vesting of stock options during the salary continuation period.
After the first year, salary continuation payments will be reduced by the amount
of any compensation and benefits the Named Officer receives from other
employment.
If the Named Officer's employment is terminated in connection with a "change in
control" of Sears, the Named Officer will receive the following benefits:
o Pro-rated salary, including base pay and target bonus, as of the
termination;
o A lump sum equal to two years of annual base pay plus two times the annual
bonus target, determined by the year of termination; and
o All Company benefits for two years following the termination.
Generally, a "change in control" occurs if:
o Anyone becomes the beneficial owner of 20% or more of the outstanding Sears
common shares or the combined voting power of all voting securities;
o The Board's nominees for election do not constitute a majority of the Board
following the election; or
o A fundamental corporate change occurs, such as a reorganization, merger,
consolidation, liquidation, or dissolution or a sale of substantially all
of Sears assets, unless Sears shareholders and directors maintain control
of the resulting entity.
Named Officer's agreements may also provide for supplemental plan benefits as
described in the compensation tables.
In April, 2000, the Company and Mr. Martinez entered a retirement agreement,
reflecting his service to Sears and providing for his leadership in the
management transition process. Under the agreement, Mr. Martinez will receive
retirement benefits, including the payments reflected in the Summary
Compensation Table on page 12, additional credited compensation and service
under the Company's pension plans (under which Mr. Martinez elected to take,
upon retirement, a lump-sum payment of $12,059,871), retiree medical coverage
based on an assumption of 10 years of continuous service, continuing
indemnification and liability insurance coverage, and, consistent with the
Company's tradition, a furnished office with secretarial assistance for up to 9
years and tax and financial planning for 5 years. The Company also agreed to
fully vest 319,684 shares subject to options previously granted. Mr. Martinez'
performance-based option on 500,000 shares vested, subject to satisfaction of
the share-price condition described in "Performance-Based Stock Options."
CERTAIN STOCK OPTION AND RESTRICTED SHARES PROVISIONS
This section describes the material terms of the Sears stock options, restricted
shares, performance-based stock options and performance-based restricted shares
held by the Named Officers as of January 31, 2001, subject to the adjustments
for Mr. Martinez described above. See the Option Grants in 2000 table on page 14
for additional detailed information.
STOCK OPTIONS
The options the Company granted to the Named Officers in 2000 vest in three
equal annual installments and remain exercisable until the tenth
17
22
anniversary of the grant date. The vesting rule is subject to the following
exceptions:
o Generally, a pro-rated portion of unvested options will continue to vest
after a Named Officer's normal retirement at age 65, his Company-approved
early retirement or his death or permanent disability.
o 100% of the options will vest upon a change in control of the Company.
o Performance-based option grants to Mr. Cohen and Ms. Kelly are subject to
the vesting schedule described under "Performance-Based Stock Options."
o One grant to Mr. Lacy vests in two equal annual installments beginning four
years from the date of grant.
In addition, the options include limited stock appreciation rights that become
exercisable in certain cases upon a change of control.
The Company can terminate all outstanding stock options, vested and unvested, if
it merges with another entity or enters into certain other extraordinary
transactions. In the event of such a transaction, the Company must make one of
three equitable adjustments to the outstanding options:
o Replace the options with equivalent options for shares in the new entity;
o Accelerate the vesting of options so that they are exercisable prior to the
transaction; or
o Pay in cash the difference between the exercise price of the options and
the market price of the stock underlying the options - whether vested or
unvested - on the date of the transaction.
RESTRICTED SHARES
Restricted shares are Sears common shares that cannot be sold or otherwise
transferred. A Named Officer or that officer's estate can exchange restricted
shares (other than performance-based restricted shares described below) for
unrestricted shares upon:
o The scheduled vesting date of the grant, which varies by grant;
o Retirement at age 65;
o Early retirement with Company approval after age 60;
o Death;
o Permanent disability; or
o A change in control of the Company.
Under a policy of the Sears Compensation Committee, a holder of restricted
shares who retires before age 60 is permitted to exchange a pro-rated portion of
the restricted shares for unrestricted shares.
PERFORMANCE-BASED STOCK OPTIONS
In 1997, the Company granted performance-based stock options to Mr. Lacy and Mr.
Martinez. In 2000, the Company granted performance-based options with the same
conditions to Mr. Cohen and Ms. Kelly.
Vesting Schedule
Subject to the share-price condition described below, the performance-based
options become exercisable in three installments, one-half in March 2003 and
one-quarter in each of March 2004 and 2005. Mr. Lacy, Mr. Cohen and Ms. Kelly
must remain employed by the Company through the vesting dates to be able to
exercise the full amount of their performance-based options. Mr. Martinez'
performance-based options are currently exercisable, subject to the share-price
condition described below.
The vesting schedule is subject to some exceptions, pursuant to which a
pro-rated portion of the performance-based options will become exercisable under
the circumstances described below. The number of "Pro-Rated Options" will be
calculated by multiplying the total number of shares underlying the
performance-based option held by a Named Officer by a fraction, the numerator of
which will be the number of months that elapse between the grant date and the
date employment terminates and the denominator of which will be the number of
months from the date of grant to the date each installment otherwise vests.
o A Named Officer's Pro-Rated Options will continue to vest after normal
retirement (age 65), Company-approved early retirement, death or permanent
disability.
o A Named Officer's Pro-Rated Options will become exercisable after a change
in control if (i) the Named Officer and the Company mutually agree to end
his employment or (ii) the Named Officer resigns because his job
responsibilities or salary change significantly.
o All of a Named Officer's options will become exercisable if, following a
change in control of the Company, the Company terminates his employment
without cause.
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23
Share-Price Condition
In addition to the time-based vesting requirements, the performance-based
options are subject to the following condition: each installment will become
exercisable if prior to March 12, 2003 the daily average price for Sears common
shares is at least $100.00 per share for 20 consecutive trading days (the
"share-price condition").
If the Company undergoes a change in control, for 60 days following the change
in control, stock appreciation rights will be available with respect to vested
performance-based options.
PERFORMANCE-BASED RESTRICTED SHARES
In 1997, the Company granted performance-based restricted shares to Mr. Lacy.
The performance-based restricted shares become exchangeable for unrestricted
shares on the dates specified below if the share-price condition is satisfied.
Subject to satisfying the share-price condition, the performance-based
restricted shares will become exchangeable for unrestricted shares on March 12,
2007. In addition, a pro-rated portion of the restricted shares will become
exchangeable under the circumstances described below. The number of "Pro-Rated
Restricted Shares" will be calculated by multiplying the total number of
performance-based restricted shares owned by Mr. Lacy by a fraction, the
numerator of which will be the number of months that elapse between the grant
date and the date the employment of Mr. Lacy terminates and the denominator of
which will be the number of months required for full vesting of his
performance-based restricted shares (120 months).
o The Pro-Rated Restricted Shares will become exchangeable for unrestricted
shares upon normal retirement (age 65), Company-approved early retirement,
death or permanent disability.
o The Pro-Rated Restricted Shares will become exchangeable after a change in
control if (i) Mr. Lacy and the Company mutually agree to end his
employment or (ii) he resigns because his job responsibilities or salary
change significantly.
o All of the restricted shares will become exchangeable if, following a
change in control of the Company, the Company terminates his employment
without cause.
Report of the Compensation Committee
--------------------------------------------------------------------------------
Sears seeks to manage its businesses to create superior long-term shareholder
returns. In support, Sears executive compensation philosophy and compensation
program are designed to: 1) provide competitive total compensation, 2) reward
executives who achieve business objectives and 3) reinforce long-term commitment
to business growth.
The program is based on executive performance, aligning executive interests with
those of shareholders. Executives have both individual and collective
accountability for reaching defined performance standards. These standards are
built around management objectives to: 1) drive profitable growth, 2) become
truly customer-centric, 3) develop a diverse, high-performance culture and 4)
focus on productivity and returns.
When Sears achieves its goal of top quartile performance against a peer group of
retail and service companies, Sears executives should be rewarded with
competitive compensation. Pay at risk should be an important portion of total
compensation, and incentive curves should be appropriate to stretch objectives.
In addition, outstanding growth as measured by increasing long-term shareholder
returns should result in superior rewards for executives.
At every level, compensation practices should reinforce Sears commitment to the
customer's view, satisfied through achievement-oriented associates demonstrating
individual and team commitment to performance and shareholder value.
COMPENSATION PROGRAM
The executive compensation program consists of five parts:
Base Salary
Base salaries are reviewed each year and reward executives for contributions to
company success. Base pay depends upon the individual's level of contribution,
experience, performance, potential and the relevant labor market. For 2000, the
Committee approved base salary increases that were competitive with the market.
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Annual Incentive Compensation
The Annual Incentive Compensation Plan rewards individuals who achieve
year-over-year business-growth objectives. For 2000, the entire annual bonus was
based on growth in earnings per share for the CEO and officers who were direct
reports to the CEO. For others, the annual bonus generally was based on a
combination of growth in earnings per share and achievement of specified
business-unit objectives. Executives may elect to receive all or part of their
annual bonus in shares of Sears stock, which increases ownership.
Long-Term Incentive Compensation
The Long-Term Incentive Compensation Plan focuses on executives' collective
accountability to achieve long-term growth and returns. Executives may elect to
receive all or part of their long-term incentive award in shares of Sears stock,
which increases ownership. The Company did not make a payment under this plan
for 2000, which is the second year of a three-year performance cycle.
Long-Term Stock Options
Sears generally grants stock options annually under the Sears Employee Stock
Plans to reward executives for growth in Company value as measured by stock
price. The option price is equal to the fair market value of a share on the
grant date. The size of option grants is calculated as a percent of the
executive's base salary. Together, long-term incentive compensation and stock
options are designed to provide competitive levels of rewards for the
achievement of specified operating goals and growth in long-term shareholder
returns.
Stock Ownership Guidelines
To further align executive and shareholder interests, the Compensation Committee
has established a guideline for Sears stock ownership by executives. The
guideline is five times base salary for the CEO, three times base salary for
senior direct reports and one times base salary for the other senior executives.
All executives have five years to achieve ownership guidelines.
CEO COMPENSATION
Mr. Lacy's salary, annual bonus, stock option grants and long-term incentive
awards generally follow the policies just described. Amounts paid and granted
under these plans are disclosed in the compensation tables beginning on page 12.
In 2000, the Compensation Committee approved an annual base salary increase from
$600,000 to $900,000 for Mr. Lacy, recognizing his promotion to Chairman and
Chief Executive Officer. This base salary achieves the median competitive market
level for his position.
Mr. Lacy's 2000 target bonus was based on a pre-approved target level of
improvement in the Company's earnings per share over the prior year, as
described under "Annual Incentive Compensation." The Company's actual earnings
per share exceeded the target level. Accordingly, Mr. Lacy's 2000 annual bonus
of $1,041,247 was also above target level.
In 2000, the Company granted Mr. Lacy an option to purchase 555,000 common
shares at a grant price of $33.14 in conjunction with his promotion to Chairman
and Chief Executive Officer. The Company also granted Mr. Lacy an option to
purchase 48,750 common shares at a grant price of $31.07.
In 2000, Mr. Martinez retired as Chairman and CEO of the Company. In recognition
for his years of dedicated service, his leadership in the management transition
process and the overall transformation of Sears, Mr. Martinez will receive
payments related to his retirement that are described on page 17.
PEER COMPANIES
The Committee regularly monitors compensation practices of peer retail and
service industry companies and other Fortune 100 companies to determine the
competitiveness of Sears executive compensation. The Committee believes that the
Company's most direct competitors for executive talent are not always industry
peers. The compensation peer group is not identical to the companies included in
the S&P Retail Stores Composite Index and the S&P Retail Department Stores Index
that are used for the comparison performance graph on page 22, although some
companies are in both the compensation peer group and one or both of the
indexes.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Federal tax law limits the Company's tax deduction for annual compensation paid
to certain Named Officers to $1 million per person, unless certain exceptions
apply. One of these exceptions is that certain compensation based on objective
performance goals and terms approved by shareholders is not subject to the $1
million limitation. The Committee uses and intends to use performance-based
compensation, which should minimize the effect of these tax limits. Yet because
Sears must attract and
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appropriately reward executives, the Committee believes the loss of a tax
deduction occasionally may be necessary.
PERFORMANCE-BASED EQUITY INCENTIVES
To emphasize Sears commitment to creating greater shareholder value, in 1997 and
2000, the Company granted performance-based stock options and restricted common
shares to certain members of the Company's senior management. The options will
become exercisable and the restricted shares will vest only if the price of
Sears common stock reaches $100 for 20 consecutive trading days prior to March
12, 2003. The material terms of the stock options and restricted shares are
described on pages 18 and 19.
Also, officers who elect to receive some or all of their annual or long-term
incentive award in Sears shares receive a 20% premium on the portion of the
bonus they take in shares. The premium portion is paid in restricted shares.
THE COMPENSATION COMMITTEE
The Compensation Committee is composed of independent, non-employee directors.
The Committee helps the Board establish the Company's executive compensation
philosophy. The Committee approves the terms and conditions of employment for
executive officers and administers the compensation programs for these officers.
In addition, the Committee oversees benefits plans covering all associates,
recommending changes in these plans to the Board. The Committee uses the
advisory services of independent compensation and benefits consultants in
meeting its responsibilities.
CONCLUSION
The Compensation Committee believes that Sears executive compensation programs
align the interests of the Company's executive officers with those of the
shareholders and support management objectives to drive profitable growth and
improve productivity and financial returns.
COMPENSATION COMMITTEE:
BRENDA C. BARNES (CHAIRMAN)
JAMES R. CANTALUPO
W. JAMES FARRELL
MICHAEL A. MILES
DOROTHY A. TERRELL
Compensation Committee Interlocks and Insider Participation
--------------------------------------------------------------------------------
During 2000, the following directors (none of whom was or had been an officer or
employee of the Company or any of its subsidiaries) served on the Company's
Compensation Committee: Brenda C. Barnes, James R. Cantalupo, Alston D. Correll,
Jr., W. James Farrell, Michael A. Miles, Patrick G. Ryan and Dorothy A. Terrell.
There were no interlocks with other companies within the meaning of the SEC's
proxy rules during 2000.
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Performance Graph
--------------------------------------------------------------------------------
The following graph compares the performance of Sears common shares with that of
the S&P 500 Index, the S&P Retail Stores Composite Index and the S&P Retail
Department Stores Index.
The S&P Retail Stores Composite Index consists of all companies included in the
S&P 500 Index in the broadly defined retail sector, which includes competing
retailers of softlines (apparel and domestics) and hardlines (appliances,
electronics and home improvement products), as well as food and drug retailers.
The S&P Retail Department Stores Index consists primarily of department stores
that compete with the Company's full-line stores.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
DECEMBER 1995 THROUGH DECEMBER 2000
[PERFORMANCE GRAPH]
1995 1996 1997 1998 1999 2000
----- ------ ------ ------ ------ ----- -----
SEARS 100.00 120.26 120.44 115.17 84.24 99.20
S&P 500 100.00 122.94 163.94 210.79 255.15 231.93
S&P RETAIL COMPOSITE 100.00 117.76 170.34 274.74 332.79 279.85
S&P RETAIL DEPT. STORES 100.00 113.12 142.78 146.16 124.25 127.32
Assumes $100 invested on December 29, 1995. Dividends are reinvested at the end
of the month in which the ex-dividend date falls.
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ITEM 2: APPOINTMENT OF AUDITORS
--------------------------------------------------------------------------------
Item 2 is the ratification of the Audit Committee's recommendation that Deloitte
& Touche LLP be appointed independent public accountants to audit the financial
statements of the Company for fiscal year 2001. Representatives of Deloitte &
Touche LLP will be present at the meeting. They will be available to respond to
your questions and may make a statement if they desire.
THE BOARD RECOMMENDS THAT YOU VOTE to ratify THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS AUDITORS FOR 2001 AS PROPOSED IN ITEM 2.
ITEM 3 AND ITEM 4: PERFORMANCE GOALS - ANNUAL INCENTIVE COMPENSATION PLAN AND
PERFORMANCE GOALS - LONG-TERM INCENTIVE COMPENSATION PLAN
--------------------------------------------------------------------------------
The Company uses annual and long-term incentive plans to attract and retain key
employees and to provide added incentives to achieve performance goals. The two
incentive plans covered by these proposals, the Annual Incentive Compensation
Plan (the "AIP") and the Long-Term Incentive Compensation Plan (the "LTIP"),
historically have been an integral part of the Company's compensation structure.
Sears is seeking shareholder approval of the material terms of the performance
goals under the incentive plans, including:
o The employees eligible to participate in the incentive plans,
o The business criteria (goals, formulae or standards) used to calculate
bonuses payable, and
o The maximum nondiscretionary bonus payable to a participant.
At the 1994 Sears annual meeting, shareholders approved the material terms of
the performance goals under the incentive plans. At the 1996 Sears annual
meeting, shareholders re-approved them, making additional business criteria
available and revising the maximum amounts payable.
Sears is seeking your approval again this year for two reasons. First, in order
to avoid limits on the federal tax deductibility of compensation paid under the
incentive plans to certain Named Officers for any given year, the Company must
seek shareholder approval of the material terms of the performance goals every
fifth year. Second, the Board desires to expand the range of business criteria
available and revise the maximum amounts payable.
If Sears does not receive shareholder approval, Sears will consider whether to
continue the incentive plans for the Named Officers and alternative ways to
fairly compensate them.
THE BOARD RECOMMENDS THAT YOU VOTE TO APPROVE THE MATERIAL TERMS OF THE
PERFORMANCE GOALS UNDER THE INCENTIVE PLANS.
The Company proposes that certain officers and key employees of the Company
continue to be eligible to participate in the incentive plans. As of January 31,
2001, there were 210 participants in each of the incentive plans, all of whom
were senior Company officers.
While the performance goals are used more broadly, the incentive plans and
approval by shareholders are intended to satisfy requirements for federal tax
deductibility for compensation of certain Named Officers. Future payments under
the plans are not ascertainable. The Summary Compensation Table's bonus column
(page 12) and the Long-Term Incentive Compensation Plan table (page 15) provide
additional information about payments under the plans to Named Officers for
2000.
The Compensation Committee of the Board selects participants from among those
approved by shareholders and establishes written performance goals based on
shareholder approved business criteria:
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o At the beginning of the fiscal year for the AIP, and
o At the beginning of a performance cycle (generally covering at least three
years) for the LTIP.
The Compensation Committee does not have discretion to adjust the performance
goals once they have been set for a performance period.
The performance goals are based on one or more of the business criteria approved
by the shareholders. A third party with knowledge of the relevant facts could
determine whether the performance goals were satisfied and calculate the amount
of any non-discretionary bonus payable. (However, the specific targets generally
are confidential business information and are not publicly disclosed.)
The Company proposes to use the following business criteria: financial return
ratios (such as profit return or margin), revenue, comparable stores sales
growth, earnings, earnings per share, cash flow, balance sheet measurements
(such as working capital, inventory or receivable turnover), cost management,
market share, value-based measures (such as stock price or shareholder return or
value), productivity, customer satisfaction performance goals and employee
opinion survey results.
Generally, any incentive plan participant employed on the last day of the fiscal
year is eligible to receive a nondiscretionary cash bonus, based upon the
attainment of the performance goals. The incentive plans do not allow the
Compensation Committee of the Board of Directors to increase a non-discretionary
bonus. The incentive plans do allow the Compensation Committee to award a
discretionary cash payment to any incentive plan participant other than certain
Named Officers. The Compensation Committee may decrease or eliminate a bonus
otherwise payable to any participant.
The Company proposes a maximum non-discretionary bonus payable each year under
the AIP to any plan participant of $6,000,000.
The Company proposes a maximum non-discretionary bonus payable each year under
the LTIP to any plan participant of $6,000,000.
In each case, the maximum will be increased to include an additional sum equal
to 20% of the bonus payable if the employee accepts the bonus (and additional
sum) in Company stock or equivalent units, as may be allowed. (The stock or
equivalent units will be issued under a separate, existing plan.)
The Board or Compensation Committee may amend, suspend or terminate the
incentive plans at any time, except shareholder approval is required to change
the eligible employees, business criteria or maximum nondiscretionary bonus.
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Item 5: Shareholder Proposal Regarding Vendor Standards
--------------------------------------------------------------------------------
Item 5 is a proposal submitted by Christian Brothers Investment Services, Inc.
(the "Lead Proponent"), American Friends Service Committee, Congregation of the
Sisters of Charity of the Incarnate Word, Connecticut Retirement Plans and Trust
Fund, Domini Social Investments, Aaron Merle Epstein, New York City Police
Department Pension Fund, St. Joseph Health System, The Sisters of St. Francis of
Philadelphia, and United States Trust Company. A list of the names, addresses
and number of the Company's shares held by each co-proponent will be promptly
provided upon oral or written request.
SHAREHOLDER PROPOSAL
WHEREAS: Consumers and shareholders continue to be seriously concerned about
whether abusive working conditions and absence of a living wage exist in
facilities where the products they buy are produced or assembled.
Three-quarters of the US consumers surveyed would avoid shopping at a retailer
that they knew sold garments made in sweatshops. An overwhelming 86% of those
surveyed would pay a 5% mark-up to ensure decent working conditions. ("The
Consumer and Sweatshops," Marymount University Survey, November 1999)
Students have persuaded their universities to adopt codes requiring that
clothing sold in university stores is made under humane conditions. (Business
Week, 5/3/99)
Nearly half the global workforce involved in producing textiles, garments and
shoes are women and wage inequalities are their universal lot. (International
Labor Organization, 10/16/00)
Our company purchased goods produced in countries like China where human rights
abuses and unfair labor practices have been well documented. (U.S. State
Department's "China Country Report on Human Rights Practices -- 1999")
Reports that suppliers are exploiting workers may damage our company's
reputation and generate a consumer backlash. Our company should demonstrate
enforcement of its standards by developing independent monitoring programs with
local, respected and independent religious, human rights and labor groups. To be
credible, the process of monitoring and verification must be transparent, with
the contents of compliance reports made public.
To improve the quality of life of workers who make its products, our company
should implement ongoing wage adjustments, ensuring that workers have a
sustainable living wage.
And rather than terminating contracts Sears should establish incentives to
encourage its suppliers and vendors to raise labor standards.
RESOLVED: Request the Board of Directors to:
1. Amend the Sears Buying Policy and standard purchase contracts to reflect
full adoption of the principles defined by the International Labor
Organization (ILO). ("Declaration on Fundamental Principles and Rights at
Work and its Follow-up")
2. Establish an independent monitoring process that assesses adherence to
these conventions and,
3. Report annually on adherence to the amended Policy through an independent
and transparent process, the first such report to be completed by January
2002.
SHAREHOLDERS' SUPPORTING STATEMENT
1. All workers have the right to form and join trade unions and to bargain
collectively. (ILO Conventions 87 and 98).
2. Workers representatives shall not be the subject of discrimination and
shall have access to all workplaces necessary to enable them to carry out
their representation functions. (ILO Convention 135)
3. There shall be no discrimination or intimidation in employment. Equality of
opportunity and treatment shall be provided regardless of race, color, sex,
religion, political opinion, age, nationality, social origin or other
distinguishing characteristics. (ILO Convention 100 and 111).
4. Employment shall be freely chosen. There shall be no use of force,
including bonded or prison labor. (ILO Convention 29 and 105).
5. There shall be no use of child labor. (ILO Convention 138)
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THE COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that shareholders vote against this proposal.
Sears is fully committed to conducting its business at home and abroad with a
high standard of business ethics, in compliance with all applicable laws and
with a regard for human rights. Sears expects its vendors to do the same.
Consistent with this commitment, the Company has developed policies and
procedures designed to maximize compliance by its vendors with the Company's
position. These policies and procedures include a buying policy, standard
purchase contract provisions, and audit procedures.
The buying policy sets forth requirements that Sears vendors -- domestic and
foreign -- generally must satisfy as a condition of doing business with Sears.
The standard policy is reviewed and revised periodically. The standard policy
specifically addresses many of the concerns expressed in the International Labor
Organization principles cited by the proponents. It prohibits the use of child
labor and forced labor, sets forth requirements regarding employee health and
safety, and outlines requirements for employment practices, wages, hours and
benefits. It prohibits vendors from penalizing employees who exercise their
right to establish and join legal organizations and prohibits job discrimination
based on personal characteristics and beliefs.
The Company's standard purchase contract requires vendors to certify that all
goods sold to Sears are manufactured in compliance with all applicable laws
governing the vendor's working conditions, wages, hours and minimum age of the
vendor's work force. Vendors further represent and warrant that their goods have
not been produced by forced or involuntary labor. Vendors also agree to respond
to Sears requests for information regarding the location and method of
manufacture. The standard purchase contract prohibits vendors from changing the
location of manufacture without first informing Sears and authorizes Sears to
inspect any production facilities at which any Sears merchandise, or any
components or piece goods, are being produced. This includes the vendor's own
facilities as well as those of subcontractors and suppliers.
Sears has retained an independent, contractor compliance auditing firm to review
the working conditions and employment practices of a selected number of domestic
apparel vendors that supply Sears branded products each year. In addition, Sears
personnel review the facilities used by prospective overseas vendors to
authorize the supplier relationship with Sears and periodically review general
working conditions in a selected number of existing overseas facilities. When
these reviews reveal problems, Sears will generally work with the vendor to have
the problems corrected, but reserves the right to terminate the supplier
relationship.
Sears learns of alleged violations from external sources, including customers,
media reports and concerned citizens. In addition, Sears reviews the Department
of Labor's quarterly Garment Enforcement Report, which lists domestic
manufacturers who have been cited for wage and hour violations. Sears
investigates alleged violations and wage and hour citations with its vendors and
such other parties as appropriate. If the Company determines that the alleged
violations have merit, Sears will work with the vendor to address the problem or
terminate the vendor. The Company follows up with vendors to verify that the
wage and hour citations have been satisfactorily resolved.
Finally, the Company provides, on request, information about its buying
practices and policies and vendor standards. The Company has met in the past
with the Lead Proponent of this proposal and has expressed its willingness to
open additional dialog with the Lead Proponent in a continuing effort to
strengthen our commitment.
The Board of Directors believes that the buying policy, coupled with other
procedures currently in place, reflects Sears commitment.
ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 5.
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Certain Transactions
--------------------------------------------------------------------------------
As described on page 11, State Street Bank and Trust Company ("State Street")
beneficially owns 10.1% of Sears outstanding common shares. State Street
provides credit lines to the Company, provides investment management services to
the Sears Pension Plan and serves as trustee for the 401(k) Plan. In addition,
State Street also provides, through a joint venture with CitiGroup formed on
April 1, 2000, administrative services to the 401(k) Plan and the Sears Pension
Plan. In 2000, the Company, the Sears 401(k) Plan and the Sears Pension Plan
together paid State Street approximately $8.6 million for these and related
services.
Independent Accountant Fees
--------------------------------------------------------------------------------
Deloitte & Touche LLP billed the Company the following fees for the past fiscal
year.
Audit Fees (review of quarterly and audit of annual financial statements) $ 3,021,500
Financial Information System Design and Implementation Fees (as defined in $ -0-
applicable SEC rules).
All Other Fees $ 2,796,120
Other Matters
--------------------------------------------------------------------------------
Effective March 31, 1998, the Company renewed its directors and officers
liability insurance policies in the aggregate amount of $150 million. The 2000
premiums were approximately $1.67 million. The policies expire on March 31,
2001. The Company is currently in negotiations to renew the policies. The
insurers are A.C.E. Insurance Co., Lloyds of London, Gulf Insurance Co.,
Reliance National Insurance Co., Great American Insurance Co., Executive Re
Indemnity Co., Zurich-American Insurance Co., Federal Insurance Co. and National
Union Fire Insurance Co. No sums have been paid under any directors and officers
liability insurance policies or other indemnification obligation in 2000.
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Appendix A
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EXCERPTS FROM BY-LAWS OF SEARS, ROEBUCK AND CO.
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders shall be
held at such place within or without the State of New York as shall be fixed by
the Board of Directors from time to time.
Section 2. Annual Meetings. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held at such time as is
specified in the notice of the meeting on either the second Wednesday in May of
each year or on such other date as may be fixed by the Board of Directors prior
to the giving of the notice of such meeting. The Board of Directors acting by
resolution may postpone and reschedule any previously scheduled annual meeting
of shareholders.
Nominations of persons for election to the Board of Directors of the
Company and the proposal of business to be considered by the shareholders may be
made at an annual meeting of shareholders (a) pursuant to the Company's notice
of meeting, (b) by or at the direction of the Board of Directors or (c) by any
shareholder of the Company who was a shareholder of record at the time of giving
of notice provided for in this By-Law, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in this By-Law.
For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (c) of the foregoing paragraph of
this By-Law, the shareholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the Company not
less than 45 days nor more than 75 days prior to the first anniversary of the
date on which the Company first mailed its proxy materials for the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60 days
from the anniversary date of the preceding year's annual meeting, notice by the
shareholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (b)
as to any other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such shareholder and the beneficial owner,
if any, on whose behalf the proposal is made; (c) as to the shareholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as they appear on
the Company's books, and of such beneficial owner and (ii) the class and number
of shares of the Company which are owned beneficially and of record by such
shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of the preceding paragraph
to the contrary, in the event that the number of directors to be elected to the
Board of Directors of the Company is increased and there is no public
announcement naming all of the nominees for Director or specifying the size of
the increased Board of Directors made by the Company at least 70 days prior to
the first anniversary of the preceding year's annual meeting, a shareholder's
notice required by this By-Law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the Company
not later than the close of business on the 10th day following the day on which
such public announcement is first made by the Company.
Only such persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of shareholders as shall have
been brought
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before the meeting in accordance with the procedures set forth in this By-Law.
The chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal shall be disregarded.
For purposes of this By-Law, "public announcement" shall mean disclosure in
a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of
shareholders to request inclusion of proposals in the Company's proxy statement
pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any
series of Preferred Stock to elect directors under specified circumstances.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes shall be called to be held at any time upon the request of
the Chairman of the Board of Directors, the President or a majority of the
members of the Board of Directors or of the Executive Committee then in office.
Business transacted at all special meetings shall be confined to the specific
purpose or purposes of the persons authorized to request such special meeting as
set forth in this Section 3 and only such purpose or purposes shall be set forth
in the notice of such meeting. The Board of Directors acting by resolution may
postpone and reschedule any previously scheduled special meeting of
shareholders.
Nominations of persons for election to the Board of Directors may be made
at a special meeting of shareholders at which directors are to be elected (a)
pursuant to the Company's notice of meeting (b) by or at the direction of the
Board of Directors or (c) by any shareholder of the Company who is a shareholder
of record at the time of giving of notice provided for in this By-Law, who shall
be entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law. Nominations by shareholders of persons for election to
the Board of Directors may be made at such a special meeting of shareholders if
the shareholder's notice required by the third paragraph of Section 2 of Article
I of these By-Laws shall be delivered to the Secretary at the principal
executive offices of the Company not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting.
Only such persons who are nominated in accordance with the procedures set
forth in these By-Laws shall be eligible to serve as directors and only such
business shall be conducted at a special meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. The chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this By-Law and,
if any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a shareholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law.
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APPENDIX B
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AUDIT COMMITTEE CHARTER
ROLE AND INDEPENDENCE
The Audit Committee (the "Committee") is appointed by the Board of Directors
pursuant to Article III of the By-Laws of Sears, Roebuck and Co. (the "Company")
to assist the Board in monitoring (1) the integrity of the financial statements
of the Company, (2) the Company's system of internal control, (3) the
independence and performance of the Company's independent public accountants,
and (4) compliance by the Company with legal and regulatory requirements.
The Committee shall consist of such number of directors, not less than three,
who shall not be officers or employees of the Company or any of its affiliates
as shall from time to time be prescribed by the Board of Directors. Each member
of the Committee shall be, or must become within a reasonable period of time
after his or her appointment to the Committee, financially literate and at least
one member of the Committee shall have accounting or related financial
management expertise as each may be determined by the Board in the exercise of
its business judgment. Each member of the Committee shall be free of any
relationship that, in the opinion of the Board, would interfere with his or her
exercise of independent judgment, and shall meet the director independence
requirements for serving on audit committees as set forth in the corporate
governance standards of the New York Stock Exchange.
Responsibilities
The Committee shall review with management, the Company's independent public
accountants, and its internal auditors:
1. upon completion of the audit, the annual financial statements of the
Company, the independent public accountants' report thereon, the other
relevant financial information to be included in the Company's Annual
Report on Form 10-K, and its annual report to shareholders; and
2. prior to the filing of any Form 10-Q, the results of the interim financial
review with the Committee or its Chairman, when required of the independent
public accountants by the auditing standards.
While the Committee has the duties and responsibilities set forth in this
Charter, the Committee is not responsible for planning or conducting audits or
for determining whether the Company's financial statements are complete and
accurate or are in accordance with generally accepted accounting principles.
Similarly, it is not the responsibility of the Committee to resolve
disagreements, if any, between management and the independent auditors or to
ensure that the Company complies with all applicable laws and regulations.
The Committee shall review:
1. the annual audited financial statements with management, internal auditors
and the Company's independent public accountants, and discuss major changes
or other issues regarding accounting principles and practices, significant
financial reporting issues and judgments about the quality, not just the
acceptability, of the Company's accounting principles as applied in its
financial reporting;
2. recommendations made by the Company's independent public accountants and
internal auditors with respect to the accounting methods and the adequacy
of the system of internal control used by the Company;
3. the audit plans of the Company's independent public accountants and
internal auditors;
4. reports concerning compliance with governmental laws and regulations and
with the Company's policies relating to business practices and procedures,
ethics, conflicts of interest, perquisites and use of corporate assets; and
5. the Company's activities with respect to compliance with laws and
regulations.
After such reviews, the Committee shall report thereon to the Board of Directors
and prepare and file any other required reports.
Meetings
The Committee shall meet at least four times annually, and may meet more
frequently as circumstances warrant.
The Committee shall meet with the Company's independent public accountants,
internal auditors, compliance officer, or Chief Financial Officer in separate
executive sessions whenever the Committee shall deem it appropriate. The
Committee shall review with the General Counsel of the Company the status of
legal matters that may have a material
B-1
35
impact on the Company's financial statements, the Company's compliance policies,
and any material reports or inquiries received from regulators or governmental
agencies.
INDEPENDENT ACCOUNTANTS
The Committee shall instruct the Company's independent public accountants that
they are ultimately accountable to the Board of Directors and the Committee, and
that the Board and the Committee are responsible for the selection (subject to
shareholder approval if so determined by the Board), evaluation and termination
of such independent public accountants. The Committee shall each year make a
recommendation, based on a review of qualifications, to the Board of Directors
for the appointment of independent public accountants to audit the financial
statements of the Company and to perform such other duties as the Board of
Directors may from time to time prescribe. As part of such review of
qualifications, the Committee shall consider management's plans for engaging the
independent public accountants for non-audit services to determine whether the
nature of such services could impair the public accountants' independence. The
Committee shall request from the Company's independent public accountants each
year a formal written statement delineating all relationships between the
independent public accountants and the Company, and discuss with the independent
public accountants any such disclosed relationships and their impact on the
independence of the independent public accountants and, if so determined by the
Committee, recommend that the Board take appropriate action to satisfy itself of
the independence of such accountants. The Committee shall review the fees to be
paid to the independent public accountants.
Projects and Investigations
The Committee shall have the power to conduct or authorize special projects or
investigations which the Committee considers necessary to discharge its duties
and responsibilities. It shall have the power to retain independent outside
counsel, accountants or others to assist it in the conduct of any investigations
and may utilize the Company's General Counsel, internal auditors or compliance
officer for such purpose.
Review of Charter
The Committee shall review and reassess annually the adequacy of this Charter.
Report
The Committee shall prepare the report required to be included in the Company's
annual proxy statement after having completed the discussions and reviews and
having considered the matters required in connection with the report. The report
shall include the Committee's recommendation to the Board concerning the
inclusion of the audited financial statements in the Company's Annual Report on
Form 10-K.
B-2
36
PROXY
SEARS, ROEBUCK AND CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SEARS, ROEBUCK AND CO.
The undersigned, revoking any proxy previously given, hereby appoint(s)
Michael A. Miles, Hall Adams, Jr. and Brenda C. Barnes, and each of them, as
proxies with full powers of substitution, to vote, as directed on the reverse
side of this card, all shares the undersigned is entitled to vote at the 2001
Annual Meeting of Shareholders of Sears, Roebuck and Co. and authorizes each
proxy to vote at his discretion on any other matter that may properly come
before the meeting or at any adjournment of the meeting.
This card also provides voting instructions for any Sears common shares
held on the undersigned's behalf in the Sears 401(k) Savings Plan.
The nominees for election to the Board of Directors are:
01. Warren L. Batts
02. Donald J. Carty
03. Alan J. Lacy
04. Hugh B. Price
Instruction: To maximize the number of nominees elected to Sears, Roebuck
and Co.'s Board of Directors, unless otherwise specified below this proxy
authorizes the proxies named above to cumulate all votes that the undersigned is
entitled to cast at the Annual Meeting for, and to allocate such votes among,
one or more of the nominees listed above as the proxies shall determine, in
their sole and absolute discretion. To specify a different method of cumulative
voting, write "Cumulate For" and the number of shares and the name(s) of the
nominee(s) in the space provided below. Please note that you can direct the
proxies to cumulate your votes only if you vote by mail.
SEE REVERSE
SIDE
FOLD AND DETACH HERE
[X] PLEASE MARK YOUR
VOTES AS IN THIS 0111
EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein
and in the discretion of the proxy holders on all other matters properly coming
before the meeting. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL OF
THE BOARD OF DIRECTORS' NOMINEES, FOR PROPOSALS 2, 3 AND 4 AND AGAINST PROPOSAL
5, EXCEPT FOR ANY SHARES THE UNDERSIGNED HOLDS IN THE SEARS 401(k) SAVINGS PLAN,
WHICH WILL BE VOTED ACCORDING TO PLAN RULES.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
FOR WITHHELD
1. Election of Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
FOR AGAINST ABSTAIN
2. Appointment of Deloitte &
Touche LLP as independent [ ] [ ] [ ]
37
auditors for the year 2001.
3. Approval of the material terms
of the performance goals
under the Annual Incentive [ ] [ ] [ ]
Compensation Plan.
4. Approval of the material terms
of the performance goals
under the Long-Term [ ] [ ] [ ]
Incentive Compensation Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5.
FOR AGAINST ABSTAIN
5. Shareholder proposal [ ] [ ] [ ]
regarding vendor standards.
SPECIAL ACTIONS
I HAVE GIVEN WRITTEN VOTING
I WILL ATTEND INSTRUCTIONS, A CHANGE OF ADDRESS
THE ANNUAL [ ] OR COMMENTS ON THE BACK OF THIS [ ]
MEETING. CARD.
DO NOT MAIL ME FUTURE ANNUAL REPORTS. ANOTHER HOUSEHOLD [ ]
MEMBER RECEIVES ONE.
SIGNATURE (S)_____________________________________ DATE _______
NOTE: Please sign exactly as your name or names appear hereon. Joint owners
should each sign.
When signing as attorney, executor, administrator, trustee, guardian
or corporate officer, give full title.
[SEARS LOGO]
38
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on
this instruction card votes all common shares of Sears, Roebuck and Co. that you
are entitled to vote and gives voting instructions for any common shares held on
your behalf in the Sears 401(k) Savings Plan.
Please consider the issues discussed in the proxy statement and cast your vote
by:
[PICTURE]
Accessing the World Wide Web site http://www.eproxyvote.com/s to vote via the
Internet. YOU CAN ALSO REGISTER AT THIS SITE TO ACCESS FUTURE PROXY MATERIALS
ELECTRONICALLY.
[PICTURE]
Using a touch-tone telephone to vote by phone toll free from the U.S. or Canada.
Simply dial 1-877-779-8683 and follow the instructions. When you are finished
voting, your vote will be confirmed and the call will end.
[PICTURE]
Completing, dating, signing and mailing the proxy card in the postage-paid
envelope included with the proxy statement or sending it to Sears, Roebuck and
Co., c/o First Chicago Trust Company of New York, P.O. Box 8648, Edison, New
Jersey 08818-9147.
You can vote by phone or via the Internet any time prior to May 10, 2001. You
will need the control number printed at the top of this instruction card to vote
by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.
39
SEARS, ROEBUCK AND CO.
ANNUAL INCENTIVE COMPENSATION PLAN
Amended and Restated as of January 1, 1994
SECTION ONE
ESTABLISHMENT; RATIFICATION; PURPOSE
1.1 Establishment. The Compensation Committee ("Committee") of Sears, Roebuck
and Co. ("Company"), which consists solely of outside, disinterested
members of the Board of Directors ("Board"), establishes this annual
incentive compensation plan ("Plan") effective January 1, 1994 subject to
approval by the Board. This Plan consists of a nondiscretionary bonus
program and a discretionary bonus program. This Plan amends and restates
the Annual Incentive Compensation Plan, which was last amended as of March
18, 1985, to conform to recent changes in federal income tax law.
1.2 Ratification. Except as may be provided in subsection 3.6, the material
terms of the performance goals under which bonuses are paid under the
nondiscretionary bonus program which includes the eligible employees
specified in subsection 2.1, the objective performance goals, formulae or
standards specified pursuant to subsection 3.2 and the maximum
nondiscretionary bonus payable under subsection 3.3 must be disclosed to
and approved by the Board and the Company's shareholders. Shareholder
approval must be given in a separate vote by a majority of the votes cast
by the holders of Company shares represented in person or by proxy at the
annual meeting. Unless sooner required by subsection 3.5, redisclosure to
and reapproval by the Company's shareholders is required every five years.
1.3 Purpose. This Plan is intended to attract and retain competent executives
and provide added incentive to promote short-term performance goals, taking
into account the varying objectives and conditions of the businesses
carried on by the Company and its subsidiaries.
SECTION TWO
PARTICIPANTS; COVERED EMPLOYEES
2.1 Participants. Certain officers and other key employees of the Company and
its subsidiaries ("Participants") are eligible to receive annual cash
awards under this Plan.
2.2 Covered Employees. Participants who are "Covered Employees" under section
162(m) of the Internal Revenue Code of 1986, as amended, are not eligible
to participate in the discretionary bonus program under this Plan.
SECTION THREE
NONDISCRETIONARY BONUS PROGRAM
3.1 Nondiscretionary Bonuses. Each Participant who is actively employed by the
Company or a subsidiary on the last day of a fiscal year is eligible to
receive a nondiscretionary cash bonus for such fiscal year based upon the
attainment of objective performance goals established under subsection 3.2.
3.2 Objective performance Goals, Formulae or Standards. The Committee will
establish the objective performance goals, formulae or standards applicable
to each Participant or class of Participants for a fiscal year in writing
prior to the beginning of such fiscal year or at a later date if allowed
under applicable federal tax authority and while the outcome of the
performance goals is substantially uncertain. The Committee shall establish
such objective performance goals, formulae or standards for each fiscal
year which may be expressed in terms of annual financial, operating or
other criteria, or any combination thereof, and may involve comparisons
with respect to historical results of the Company and its subsidiaries and
operating groups or segments thereof, or any other indicia, all as the
Committee deems appropriate to achieve the purposes of the Plan expressed
in subsection 1.3. However, each objective performance goal, formula and
standard must be based upon or measured by criteria which would permit a
third party having knowledge of the relevant facts to determine
40
whether the objective performance goal was satisfied and to calculate the
amount of nondiscretionary bonus payable to a Participant.
3.3 Limitations; Prohibited Discretion. The maximum amount of nondiscretionary
bonus payable to a Participant for any fiscal year will be disclosed to and
approved by the shareholders under subsection 1.2 as required under
applicable federal tax authority. The objective performance goals, formulae
or standards must preclude the discretion (which includes any increase in a
Participant's base salary after the first day of the fiscal year to the
extent prohibited under applicable tax authority) to increase the amount of
nondiscretionary bonus payable to a Participant. However, the Committee
retains the discretion to eliminate or decrease the amount of
nondiscretionary bonus otherwise payable to a Participant.
3.4 Payment Date; Committee Certification. Nondiscretionary bonuses will be
paid as soon as practicable after the fiscal year in which they are earned,
but not before the Committee certifies in writing that the performance
goals specified pursuant to subsection 3.2 were, in fact, satisfied.
3.5 Disclosure and Approval of Material Changes. Except as may be provided in
subsection 3.6, a change in any of the following must be disclosed to and
approved by the Board and the Company's shareholders: (i) participants
eligible to receive cash awards under subsection 2.1; (ii) the objective
performance goals, formulae or standards specified pursuant to subsection
3.2; and (iii) the maximum nondiscretionary bonus payable under subsection
3.3. Shareholder approval must be given in a separate vote by a majority of
the votes cast by holders of Company shares represented in person or by
proxy at the annual meeting next following the date of any such change.
3.6 Confidential Commercial or Business Information. The specific targets of an
objective performance goal, formula or standard need not be disclosed to or
approved by the Company's shareholders under subsection 3.5 to the extent
that such targets are confidential commercial or business information, the
disclosure of which would have an adverse effect on the Company or a
subsidiary. The modification of such specific targets pursuant to
subsection 3.2 also need not be approved by the Company's shareholders.
However, the nondisclosure of such confidential commercial or business
information targets must be disclosed to the Company's shareholders.
SECTION FOUR
DISCRETIONARY BONUS PROGRAM
4.1 Discretionary Bonuses. Each Participant who is not a Covered Employee is
eligible to receive a discretionary cash bonus for a fiscal year based
upon the judgment and discretion of the Committee.
4.2 Committee Discretion. The Committee will award discretionary bonuses by
taking into account such goals, objectives or other indicia as it deems
appropriate to achieve the purposes of this Plan expressed in
subsection 1.3. The Committee may make such general adjustments or
modifications of its goals, objectives and other indicia as it deems
equitable to account for extraordinary or non-recurring charges or events,
changes in applicable accounting standards, or changes in a Participant's
position with the Company or a subsidiary.
4.3 Payment Date. Discretionary bonuses will be paid to participants as soon
as practicable after the fiscal year in which they are earned.
4.4 Employment Requirement. A Participant must be actively employed by the
Company or a subsidiary on the last day of a fiscal year to receive a
discretionary bonus for such year. However, if such employment is
terminated before the end of such fiscal year for any reason the Committee
may, in its discretion and taking into consideration the purposes of this
Plan expressed in subsection 1.3, authorize on such terms and conditions as
it may determine the payment of a discretionary bonus to a Participant or a
Participant's beneficiaries.
41
SECTION FIVE
MISCELLANEOUS
5.1 Administration. Subject to subsections 1.2 and 3.5, the Committee has sole
discretion and responsibility for the administration and interpretation of
this Plan and may make all determinations and take all actions necessary or
advisable for the administration and interpretation of this Plan, including
the making of any finding of fact necessary to administer or interpret this
Plan.
5.2 Assignment. Bonus awards under this Plan are payable only to a Participant
and a Participant's beneficiaries. The rights and interests of a
Participant under this Plan are a contingent, unfunded promise to pay money
in the future and may not be assigned, encumbered or transferred,
voluntarily or involuntarily, other than by will or the laws of descent and
distribution.
5.3 No Employment or Participation Rights Created. No individual will have any
claim or right to be a Participant in this Plan at any time, and any
individual's Participation in this Plan may be terminated at any time
without notice, cause or regard for past practices. Neither this Plan nor
any action under this Plan will confer on any person any right to be
retained in the employ of the Company or a subsidiary.
5.4 Applicable Taxes. The Company or a subsidiary has the right to withhold
applicable taxes from a bonus award.
5.5 Amendment or Termination. Subject to subsections 1.2 and 3.5, the Committee
or the Board may at any time amend, suspend or terminate this Plan.
42
SEARS, ROEBUCK AND CO.
LONG-TERM INCENTIVE COMPENSATION PLAN
Amended and Restated as of January 1, 1994
SECTION ONE
ESTABLISHMENT; RATIFICATION; PURPOSE
1.1 Establishment. The Compensation Committee ("Committee") of Sears, Roebuck
and Co. ("Company"), which consists solely of outside, disinterested
members of the Board of Directors ("Board"), establishes this long-term
incentive compensation plan ("Plan") effective January 1, 1994, subject to
approval by the Board. This Plan consists of a nondiscretionary bonus
program and a discretionary bonus program. This Plan amends and restates
the Long-Term Incentive Compensation Plan, which was last amended as of
March 18, 1985, to conform to recent changes in federal income tax law and
will be applicable to all Performance Cycles ending on or after the
effective date of this Plan.
1.2 Ratification. Except as may be provided in subsection 3.6, material terms
of the performance goals under which the bonuses are paid from the
nondiscretionary program which include the eligible employees and
Performance Cycles specified in or pursuant to subsection 2.1, the
objective performance goals, formulae or standards specified pursuant to
subsection 3.2 and the maximum nondiscretionary bonus payable under
subsection 3.3 must be disclosed to and approved by the Board and the
Company's shareholders. Shareholder approval must be given in a separate
vote by a majority of the votes cast by the holders of Company shares
represented in person or by proxy at the annual meeting. Unless sooner
required by subsection 3.5, redisclosure to and reapproval by the Company's
shareholders is required every five years.
1.3 Purpose. This Plan is intended to attract and retain competent executives
and provide added incentive to promote long-term performance goals, taking
into account the varying objectives and conditions of the businesses
carried on by the Company and its subsidiaries.
SECTION TWO
PARTICIPANTS; COVERED EMPLOYEES
2.1 Participants. Certain officers and other key employees of the Company and
its subsidiaries ("Participants") are eligible to receive bonuses under
this Plan over specified periods of time of not less than three consecutive
fiscal years ("Performance Cycles").
2.2 Covered Employees. Participants who are "Covered Employees" under section
162(m) of the Internal Revenue Code of 1986, as amended, are not eligible
to participate in the discretionary bonus program under this Plan.
SECTION THREE
NONDISCRETIONARY BONUS PROGRAM
3.1 Nondiscretionary Bonuses. Each Participant who is actively employed by the
Company or a subsidiary on the last day of a Performance Cycle is eligible
to receive a nondiscretionary cash bonus for such Performance Cycle based
upon the attainment of objective performance goals established under
subsection 3.2.
3.2 Objective Performance Goals and Formulae or Standards. The Committee will
establish the objective performance goals, formulae or standards applicable
to each Participant or class of Participants for a Performance Cycle in
writing prior to the beginning of such Performance Cycle or at a later date
if allowed under applicable federal tax authority and while the outcome of
the performance goals is substantially uncertain. The Committee shall
establish such objective performance goals, formulae or standards for each
Performance Cycle which may be expressed in terms of financial, operating
or other criteria, or any combination thereof, and may involve comparisons
with respect to historical results of the Company and its subsidiaries and
operating groups or segments thereof, or any other indicia, all as the
Committee deems appropriate to achieve the
43
purposes of the Plan expressed in subsection 1.3. However, each objective
performance goal, formulae or standard must be based upon or measured by
criteria which would permit a third party having knowledge of the relevant
facts to determine whether the objective performance goal was satisfied
and calculate the amount of nondiscretionary bonus payable to a
Participant.
3.3 Limitations; Prohibited Discretion. The maximum amount of nondiscretionary
bonus payable to a Participant for any Performance Cycle will be disclosed
to and approved by the shareholders under subsection 1.2 as required under
applicable federal tax authority. The objective performance goals, formulae
or standards must preclude the discretion (which includes any increase in a
Participant's base salary after the first day of the Performance Cycle to
the extent prohibited under applicable tax authority) to increase the
amount of nondiscretionary bonus payable to a Participant. However, the
Committee retains the discretion to eliminate or decrease the amount of
nondiscretionary bonus otherwise payable to a Participant.
3.4 Payment Date; Committee Certification. Nondiscretionary bonuses will be
paid as soon as practicable after the end of the Performance cycle in which
they are earned, but not before the Committee certifies in writing that the
performance goals specified pursuant to subsection 3.2 were, in fact,
satisfied.
3.5 Disclosure and Approval of Material Changes. Except as may be provided in
subsection 3.6, a change in any of the following must be disclosed to and
approved by the Board and the Company's shareholders: (i) the participants
eligible to receive cash awards under subsection 2.1; (ii) the objective
performance goals, formulae or standard specified pursuant to subsection
3.2; and (iii) the maximum nondiscretionary bonus payable under subsection
3.3. Shareholder approval must be given by a majority of the votes cast by
the holders of Company shares represented in person or by proxy at the
annual meeting next following the date of any such change.
3.6 Confidential Commercial or Business Information. The specific targets of an
objective performance goal, formula or standard need not be disclosed to or
approved by the Company's shareholders under subsection 3.5 to the extent
that such targets are confidential commercial or business information, the
disclosure of which would have an adverse effect on the Company or a
subsidiary. The modification of such specific targets pursuant to
subsection 3.2 also need not be approved by the Company's shareholders.
However, the nondisclosure of such confidential commercial or business
information targets must be disclosed to the Company's shareholders.
SECTION FOUR
DISCRETIONARY BONUS PROGRAM
4.1 Discretionary Bonuses. Each Participant who is not a Covered Employee is
eligible to receive a discretionary cash bonus for a Performance Cycle
based upon the judgment and discretion of the Committee.
4.2 Committee Discretion. The Committee will award discretionary bonuses by
taking into account such goals, objectives or other indicia as it deems
appropriate to achieve the purposes of this Plan expressed in
subsection 1.3. The Committee may make such general adjustments or
modifications of its goals, objectives and other indicia as it deems
equitable to account for extraordinary or non-recurring charges or events,
changes in applicable accounting standards, or changes in a Participant's
position with the Company or a subsidiary.
4.3 Payment Date. Discretionary bonuses will be paid to Participants as soon
as practicable after the end of the Performance Cycle in which they are
earned.
4.4 Employment Requirement. A Participant must be actively employed by the
Company or a subsidiary thereof on the last day of a Performance Cycle to
receive a discretionary bonus for such Performance Cycle. However, if such
employment is terminated prior to the Performance Cycle for any reason the
Committee may, in its discretion and taking into consideration the purposes
of this Plan expressed in subsection 1.3, authorize on such terms and
conditions as it may determine the payment of a discretionary bonus to a
Participant or a Participant's beneficiaries.
44
SECTION FIVE
MISCELLANEOUS
5.1 Administration. Subject to subsections 1.2 and 3.5, the Committee has sole
discretion and responsibility for the administration and interpretation of
this Plan and may make all determinations and take all actions necessary or
advisable for the administration and interpretation of this Plan, including
the making of any finding of fact necessary to administer or interpret this
Plan.
5.2 Assignment. Bonus awards under this Plan are payable only to a Participant
and a Participant's beneficiaries. The rights and interests of a
Participant under this Plan are a contingent, unfunded promise to pay money
in the future and may not be assigned, encumbered or transferred,
voluntarily or involuntarily, other than by will or the laws of descent and
distribution.
5.3 No Employment or Participation Rights Created. No individual will have any
claim or right to be a Participant in this Plan at any time, and any
individual's Participation in this Plan may be terminated at any time
without notice, cause or regard for past practices. Neither this Plan nor
any action under this Plan will confer on any person any right to be
retained in the employ of the Company or a subsidiary.
5.4 Applicable Taxes. The Company or a subsidiary has the right to withhold
applicable taxes from a bonus award.
5.5 Amendment or Termination. Subject to subsections 1.2 and 3.5, the Committee
or the Board may at any time amend, suspend or terminate this Plan.