DEF 14A 1 d322255ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                             Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to Section 240.14a-12

SEARS HOLDINGS CORPORATION

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

March 31, 2017

Dear Stockholder:

I am pleased to invite you to attend the annual meeting of stockholders of Sears Holdings Corporation (the “Company” or “Sears Holdings”) on Wednesday, May 10, 2017. The meeting will begin at 9:00 a.m. (Central time) in the Sears Holdings General Session Room, 3333 Beverly Road, Hoffman Estates, Illinois.

We are pleased to furnish proxy materials to our stockholders over the Internet. We believe that this e-proxy process expedites stockholders’ receipt of proxy materials, while also lowering the costs and reducing the environmental impact of our annual meeting.

Whether or not you plan to attend the meeting in person, please read the proxy statement and vote your shares. Instructions for Internet and telephone voting are included in your Notice of Internet Availability of Proxy Materials or proxy card (if you receive your materials by mail).

Sincerely,

 

LOGO

Edward S. Lampert

Chairman of the Board and Chief Executive Officer

Sears Holdings Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

 

 


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Sears Holdings Corporation

3333 Beverly Road

Hoffman Estates, Illinois 60179

 

 

Notice of 2017 Annual

Meeting of Stockholders

 

 

May 10, 2017

9:00 a.m. Central Time

Sears Holdings Corporation, General Session Room, 3333 Beverly Road,

Hoffman Estates, Illinois 60179

March 31, 2017

We invite you to attend the annual meeting of stockholders of Sears Holdings Corporation (“Sears Holdings,” “Company,” “we,” “our” or “us”) to:

 

1.

Elect the seven directors named in this proxy statement;

2.

Hold an advisory vote to approve the compensation of our named executive officers;

3.

Hold an advisory vote on the frequency of the advisory vote on the compensation of our named executive officers;

4.

Ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year 2017; and

5.

Consider any other business that may properly come before the meeting or any adjournments or postponements of the meeting.

The record date for determining stockholders entitled to notice of, and to vote at, this annual meeting is March 13, 2017. Only stockholders of record at the close of business on that date can vote at the meeting.

For more information, please read the accompanying proxy statement.

On or about March 31, 2017 a Notice of Internet Availability of Proxy Materials (the “Notice”) is first being mailed to our stockholders of record as of March 13, 2017 and our proxy materials are first being posted on the website referenced in the Notice (www.proxyvote.com). As more fully described in the Notice, all stockholders may choose to access our proxy materials on the website referred to in the Notice or may request a printed set of our proxy materials. In addition, the Notice and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. For those stockholders who previously requested to receive proxy materials in printed form by mail or electronically by email on an ongoing basis, you will receive those materials as you requested.

It is important that your shares are represented at the meeting. Stockholders may vote their shares (1) in person at the annual meeting, (2) by telephone, (3) through the Internet or (4) by completing and mailing a proxy card if you receive your proxy materials by mail. Specific instructions for voting by telephone or through the Internet are included in the Notice. If you attend and vote at the meeting, your vote at the meeting will replace any earlier vote.

 

LOGO

Jonathan C. Babb

Vice President, Deputy General Counsel and Corporate Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

2017 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 10, 2017.

The Company’s proxy statement for the 2017 annual meeting of stockholders and the 2016 Annual Report on Form 10-K for the fiscal year ended January 28, 2017 are available at www.proxyvote.com.


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Proxy Statement

The accompanying proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting of Stockholders to be held on Wednesday, May 10, 2017. A Notice of Internet Availability of the Proxy Materials containing instructions on how to access proxy materials via the Internet and how to vote online (www.proxyvote.com) is first being mailed to stockholders on or about March 31, 2017. For those stockholders who previously requested to receive proxy materials in printed form by mail or electronically by email on an ongoing basis, you will not receive the Notice and will continue to receive a paper or electronic copy of the proxy materials, which is also being mailed on or about March 31, 2017.

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QUESTIONS AND ANSWERS      3  
CORPORATE GOVERNANCE      7  

Corporate Governance Practices

     7  

Director Independence

     7  
ITEM 1. ELECTION OF DIRECTORS      8  

Committees of the Board of Directors

     10  

Communications with the Board of Directors

     11  

Board Leadership Structure

     11  

The Board’s Role in Risk Oversight

     11  
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP      12  
CERTAIN RELATIONSHIPS AND TRANSACTIONS      14  
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS      17  
EXECUTIVE COMPENSATION      18  

Compensation Discussion and Analysis

     18  

Compensation Committee Role in Executive Compensation Decisions

     25  

Compensation Committee Interlocks and Insider Participation

     25  

Compensation Committee Report

     25  

Summary Compensation Table

     26  

Grants of Plan-Based Awards

     27  

Outstanding Equity Awards at 2016 Fiscal Year End

     28  

Option Exercises and Stock Vested

     28  

Potential Payments Upon Termination of Employment

     28  
COMPENSATION OF DIRECTORS      32  

ITEM  2.    ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

     33  

ITEM  3.    ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

     34  

 

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ITEM 4.     RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     35  

Independent Registered Public Accounting Firm Fees

     35  

Report of the Audit Committee

     36  
OTHER INFORMATION      37  

Other Business That May Come Before the Meeting

     37  

2018 Annual Meeting of Stockholders

     37  

Section 16(a) Beneficial Ownership Reporting Compliance

     37  

Solicitation of Proxies

     37  
IMPORTANT NOTE ON VOTING      37  

 

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QUESTIONS AND ANSWERS

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, we are furnishing proxy materials by providing access to such documents on the Internet. Most stockholders will not receive printed copies of the proxy materials unless they request them. Instead, a Notice of Internet Availability of Proxy Materials (the “Notice”) is being sent to most of our stockholders

commencing on or about March 31, 2017, which will instruct you as to how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may submit your proxy on the Internet. If you would like to receive a paper or email copy of our proxy materials, you should follow the instructions for requesting such materials in the Notice.

 

 

What is included in the proxy materials? What is a proxy statement and what is a proxy?

 

The proxy materials for the Sears Holdings 2017 annual meeting of stockholders (the “Annual Meeting”) include the Notice of Annual Meeting, this proxy statement and our 2016 Annual Report on Form 10-K. If you received a paper copy of these materials, the proxy materials also include a proxy card or voting instruction form.

A proxy statement is a document that SEC regulations require us to give you when we ask you to sign a proxy designating individuals to vote on your behalf. A proxy is your legal designation of another person

to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. We have designated three of our officers as proxies for the Annual Meeting. These three officers are Jonathan C. Babb, Jason M. Hollar and Robert A. Riecker.

The form of proxy and this proxy statement have been approved by the Board of Directors and are being provided to stockholders by its authority.

 

 

What am I voting on at the Annual Meeting?

At the Annual Meeting, our stockholders are asked to:

 

 

elect the seven directors named in this proxy statement (see page 8);

 

 

hold an advisory vote to approve the compensation of our named executive officers as described in this proxy statement (see page 33);

 

 

hold an advisory vote on the frequency of the advisory vote on the compensation of our named executive officers (see page 34);

 

 

ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2017 (see page 35); and

 

 

consider any other business that may properly come before the meeting or any adjournments or postponements of the meeting.

What does it mean to vote by proxy?

It means that you give someone else the right to vote your shares in accordance with your instructions. In this way, you ensure that your vote will be counted even if you are unable to attend the Annual Meeting. If you give your proxy but do not include specific instructions on how to vote, the individuals named as proxies will vote your shares as follows:

 

 

FOR the election of the Board’s nominees for director named in this proxy statement;

 

 

FOR the approval, on an advisory basis, of the compensation of our named executive officers as described in this proxy statement;

 

 

FOR the approval of holding an advisory vote on the compensation of our executive officers every “1 Year”; and

 

 

FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal year 2017.

Who is entitled to vote?

Only holders of our common stock at the close of business on March 13, 2017 (the “Record Date”) are entitled to vote at the Annual Meeting. Each outstanding share of common stock is entitled to one vote. There were 107,151,038 shares of common stock outstanding on the Record Date.

 

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QUESTIONS AND ANSWERS

 

How do I cast my vote?

 

If you hold your shares directly in your own name, you are a “registered stockholder” and can vote in person at the Annual Meeting or you can complete and submit a proxy through the Internet, by telephone or by mail. If your shares are registered in the name of a broker or other

nominee, you are a “street-name stockholder” and will receive instructions from your broker or other nominee describing how to vote your shares.

 

 

How do I vote by telephone or through the Internet?

If you are a registered stockholder, you may vote by telephone or through the Internet following the instructions on the proxy card. If you are a street-name stockholder, your broker or other nominee has provided information for you to use in directing your broker or nominee how to vote your shares.

Who will count the vote?

A representative of Broadridge Financial Solutions, Inc., an independent tabulator, will count the vote and act as the inspector of election.

Can I change my vote after I have voted?

 

A subsequent vote by any means will change your prior vote. For example, if you voted by telephone, a subsequent Internet vote will change your vote. If you are a registered stockholder and wish to change your vote by mail, you may do so by requesting, in writing, a proxy card from the Corporate Secretary at Sears Holdings

Corporation, Law Department, 3333 Beverly Road, Hoffman Estates, Illinois 60179, Attn: Corporate Secretary. The last vote received prior to the meeting will be the one counted. If you are a registered stockholder, you may also change your vote by voting in person at the Annual Meeting.

 

 

Can I revoke a proxy?

 

Yes, registered stockholders may revoke a properly executed proxy at any time before it is exercised by submitting a letter addressed to and received by the Corporate Secretary at the address listed in the answer to the previous question. Street-name stockholders cannot revoke their proxies in person at the Annual Meeting because the actual registered

stockholders, the brokers or other nominees, will not be present. Street-name stockholders wishing to change their votes after returning voting instructions to their broker or other nominee should contact the broker or nominee directly.

 

 

What does it mean if I receive more than one Notice, proxy or voting instruction card?

 

It means your shares are registered differently or are in more than one account. For all Notices you receive, please enter your vote by Internet for each control number you have been assigned. If you received paper copies of proxy materials, please provide voting instructions for all proxy and voting instruction cards you receive. We encourage you to register all your accounts in the same name and address. Registered

stockholders may contact our transfer agent, Computershare Trust Company, at 1-800-732-7780, www.computershare.com/investor or by mail at Computershare Trust Company, N.A., P.O. Box 30170, College Station, Texas 77842-3170. Street-name stockholders holding shares through a broker or other nominee should contact their broker or nominee and request consolidation of their accounts.

 

 

What shares are included on my Notice?

 

Your Notice includes all shares registered to your account in the same social security number and address, including any full and fractional shares you own under one or more of the following plans:

 

 

the Sears Holdings Savings Plan;

 

 

the Sears Holdings Puerto Rico Savings Plan; or

 

the 2006 Associate Stock Purchase Plan.

We refer to the Sears Holdings Savings Plan and the Sears Holdings Puerto Rico Savings Plan, collectively, as the “Savings Plans.”

 

 

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QUESTIONS AND ANSWERS

 

 

How do I vote if I hold my shares through the Savings Plans?

 

If you participate in a Savings Plan (US or Puerto Rico) and have a balance in the SHLD Stock Fund, you may direct the trustee how to vote the number of shares of common stock credited to your account through the Internet, by telephone, or by U.S. mail. Your direction will be held in confidence by the Plan trustee. If you do not direct the vote of shares credited to your account in a Savings Plan (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 other participants in the Savings Plans

vote their shares, unless contrary to the Employee Retirement Income Security Act of 1974. To allow sufficient time for the trustees of the Savings Plans to tabulate the vote of the Savings Plan shares, you must vote through the Internet, by telephone or return your proxy card so that it is received by 5:00 p.m. Eastern Time on May 8, 2017. Because shares of common stock held in the Savings Plans are registered in the name of the Savings Plan trustee, participants in the Company’s Savings Plans cannot vote Savings Plan shares or revoke prior voting instructions in person at the Annual Meeting.

 

 

What makes a quorum?

Each outstanding share of our common stock as of the Record Date is entitled to one vote at the Annual Meeting. A majority of the outstanding shares entitled to vote, being present or represented by proxy at the meeting, constitutes a quorum. A quorum is necessary to conduct the Annual Meeting.

How many votes are needed to approve each of the proposals?

 

Item 1: The director nominees will be elected by a plurality of the votes cast by the shares of common stock entitled to vote at the Annual Meeting and present in person or represented by proxy. This means that the seven nominees who receive the most affirmative votes will be elected as directors.

Item 2: Advisory approval of the compensation of our named executive officers requires the affirmative vote of a majority of those shares present in person or represented by proxy and entitled to vote at the Annual Meeting.

Item 3: A plurality of the votes cast is required for advisory approval of the frequency of the advisory vote on the compensation of our named executive officers. This means that the frequency selection (every “1 year,” “2 years” or “3 years”) receiving the greatest number of votes will be the frequency that stockholders approve on an advisory basis.

Item 4: Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm requires the affirmative vote of a majority of those shares present in person or represented by proxy and entitled to vote at the Annual Meeting.

 

 

How are votes counted?

 

Under Delaware law and our Restated Certificate of Incorporation and Amended and Restated By-Laws, all votes entitled to be cast by stockholders present in person or represented by proxy at the meeting and entitled to vote on the subject matter, whether those stockholders vote “for,” “against” or abstain from voting, will be counted for purposes of determining the minimum number of affirmative votes required to (1) approve, on an advisory basis, the compensation of our named executive officers and (2) ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. With regard to the election of directors, votes may be cast in favor or withheld; votes

cast in favor of a nominee will be counted for purposes of determining the nominees who will be elected; votes that are withheld will be excluded and will have no effect. However, the Board and the Nominating and Corporate Governance Committee will consider a substantial number of withheld votes in future decisions regarding director nominees. With regard to the advisory vote on the frequency of the advisory vote on the compensation of our named executive officers, the frequency selection (every “1 year,” “2 years” or “3 years”) receiving the greatest number of votes will be the frequency that stockholders approve on an advisory basis.

 

 

What is the effect of an abstention?

 

Abstentions occur when stockholders are considered present at the Annual Meeting, but fail to vote. The shares of a stockholder who abstains from voting on a matter will be counted for purposes of determining whether a quorum is present at the meeting so long as the stockholder is present in person or represented by proxy. Abstentions may be specified on all proposals (other than the election of directors). An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting has the same legal

effect as a vote “against” the proposal to approve, on an advisory basis, the compensation of our named executive officers, and the proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. With respect to the advisory vote to determine the frequency of an advisory vote on executive compensation, the action by stockholders will be based on votes for “1 year,” “2 years” or “3 years” and abstentions will have no effect.

 

 

How will votes be counted on shares held through brokers?

 

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker

non-votes.” Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from

 

 

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the beneficial owner and instructions are not given. Brokers are not entitled to vote on the election of directors or the advisory proposals to approve the compensation of our named executive officers and the frequency of the advisory vote on the compensation of our named executive officers, unless they receive voting instructions from the beneficial owner. The shares of a stockholder whose shares are not voted because of a broker non-vote on a particular matter will be

counted for purposes of determining whether a quorum is present at the meeting so long as the stockholder is represented by proxy. In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered votes cast on that proposal. Thus, broker non-votes will not affect the outcome of any matter being voted on at the meeting, assuming that a quorum is obtained.

 

 

Who may attend the Annual Meeting?

 

Any stockholder as of the Record Date may attend. Seating and parking are limited and admission is on a first-come basis. Registration will begin at 8:30 a.m. and seating will begin at 8:45 a.m.

An admission ticket (or other proof of stock ownership) and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the annual meeting. Only stockholders who own Sears Holdings common stock as of the close of business on the Record Date will be entitled to attend the meeting. An admission ticket will serve as verification of your ownership. If you received a Notice of Internet Availability of Proxy Materials and will not be requesting a printed copy of the proxy

materials, please bring that Notice with you as your admission ticket. If you are a registered stockholder and you received printed copies of your proxy materials by mail, an admission ticket is attached to your proxy card. Each stockholder may be asked to present valid picture identification (for example, a driver’s license or passport). If you are a street-name stockholder, you will need to bring a copy of a brokerage statement, proxy or letter from the broker or other nominee confirming ownership of Sears Holdings shares as of the Record Date. You may also contact your bank or broker to obtain a written legal proxy. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

 

Can I access future annual meeting materials through the Internet rather than receiving them by mail?

 

Yes. Registered stockholders can sign up for electronic delivery at www.proxyvote.com. If you vote through the Internet, you can also sign up for electronic delivery. Just follow the instructions that appear after you finish voting. You will receive an e-mail next year containing our 2017 Annual Report on Form 10-K and the proxy statement for our 2018 annual meeting. Street-name stockholders may also have the

opportunity to receive copies of these documents electronically. Please check the information provided in the proxy materials mailed to you by your broker or other nominee regarding the availability of this service. This procedure reduces the printing costs and fees the Company incurs in connection with the solicitation of proxies.

 

 

What is “householding”?

 

Sears Holdings has adopted a procedure called “householding,” which has been approved by the SEC. Under this procedure, stockholders of record who have the same address and do not receive proxy materials electronically will receive a single Notice or set of proxy materials, unless one or more of these stockholders notifies the Company that they wish to continue receiving individual copies. Stockholders who participate in householding will continue to receive separate proxy cards. This procedure can result in significant savings to the Company by reducing printing and postage costs.

If you participate in householding and wish to receive a separate Notice of Internet Availability of Proxy Materials or set of proxy materials, or if you wish to receive separate copies of future Notices, annual reports

and proxy statements, please call 1-800-542-1061 or write to: Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York 11717. The Company will deliver the requested documents to you promptly upon your request.

Any stockholders of record who share the same address and currently receive multiple copies of proxy materials who wish to receive only one copy of these materials per household in the future may contact Broadridge Financial Solutions at the address or telephone number listed above. If you hold your shares through a broker, bank or other nominee, please contact your broker, bank, or other nominee to request information about householding.

 

 

How do I revoke my consent to the householding program?

 

If you are a holder of record and share an address and last name with one or more other holders of record, and you wish to continue to receive separate annual reports, proxy statements and other disclosure documents, you may revoke your consent by writing to Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York 11717. You may also revoke your consent by contacting Sears Holdings’ householding agent by calling toll free at

1-800-542-1061 and following the voice prompts. You will be removed from the householding program within 30 days of receipt of the revocation of your consent.

A number of brokerage firms have instituted householding. If you hold your shares in street-name, please contact your bank, broker or other holder of record to request information about householding.

 

 

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CORPORATE GOVERNANCE

Corporate Governance Practices

 

Our Board of Directors (the “Board”) is committed to effective corporate governance. The Board has approved and adopted Corporate Governance Guidelines that provide the framework for governance of the Company. The Nominating and Corporate Governance Committee reviews and assesses the Corporate Governance Guidelines annually and recommends changes to the Board as appropriate. The Corporate Governance Guidelines, along with the charters of Board committees, our Code of Conduct and our Board of Directors Code of Conduct are available on our website at www.searsholdings.com under the heading “Investors—Corporate Governance.”

Among other things, the Corporate Governance Guidelines provide that:

 

 

A majority of the members of the Board must be independent directors to the extent required by the securities laws and the NASDAQ listing rules;

 

 

Independent directors are to meet regularly, at least twice a year, in executive session without management present;

 

The Board and its committees have the power to engage at the Company’s expense independent legal, financial or other advisors as deemed necessary, without consulting or obtaining the approval of the Company’s officers in advance; and

 

 

The Board conducts an annual self-evaluation to assess whether it and its committees are functioning effectively. Each year, the Nominating and Corporate Governance Committee leads a confidential assessment process under which each individual director comments on the performance of the Board and its committees. The Nominating and Corporate Governance Committee then reports to the Board with a full assessment of the Board’s performance. The assessment focuses on the Board’s contribution to the Company and areas in which the Board or management believes that the Board could improve.

 

 

Director Independence

 

Based on the review and recommendation by the Nominating and Corporate Governance Committee, the Board analyzed the independence of each director. In making its independence determinations, the Board considers transactions, relationships and arrangements between Sears Holdings and entities with which directors are associated as executive officers, directors and trustees. When these transactions, relationships and arrangements exist, they are in the ordinary course of business and are of a type customary for a retail company such as Sears Holdings.

As a result of this review, the Board affirmatively determined that the following current and former directors met the standards of independence under our Corporate Governance Guidelines and the applicable NASDAQ listing rules, including that each member is or was free of any relationship that would interfere with his or her individual exercise of independent judgment:

Cesar L. Alvarez

Bruce R. Berkowitz

Paul G. DePodesta

Alesia J. Haas

William C. Kunkler III

Steven T. Mnuchin

Ann N. Reese

Thomas J. Tisch

In determining that director Cesar L. Alvarez met the applicable independence standards, the Board considered his relationship with affiliates of Fairholme Capital Management, LLC, a significant stockholder, and the annual amounts paid by Sears Holdings to the law firm of Greenberg Traurig, LLP, where he serves as co-chairman.

In determining that director Bruce R. Berkowitz met the applicable independence standards, the Board considered his relationship with affiliates of Fairholme Capital Management, LLC, a significant stockholder.

The Board has also determined that all members of the Audit Committee meet additional, heightened independence criteria applicable to audit committee members under the NASDAQ listing rules. The Board has further determined that Ann N. Reese, the chair of the Audit Committee and William C. Kunkler, III are “audit committee financial experts,” as defined in Item 407(d)(5) of Regulation S-K promulgated by the SEC.

The Board has also determined that all members of the Compensation Committee meet independence criteria applicable to compensation committee members under the NASDAQ listing rules.

 

 

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ITEM 1.    ELECTION OF DIRECTORS

 

Item 1 is the election to our Board of the seven nominees named in this proxy statement. If elected, the seven nominees named in this proxy statement will hold office until the next annual meeting or until their successors are elected and qualified. The persons named in the proxy card (the “proxies”) will vote FOR the election of all of the nominees listed below, unless otherwise instructed.

The number of Directors constituting the entire Board of Directors is currently fixed at eight. As previously disclosed, Mr. Alvarez informed the Company of his intention to retire from the Board at the end of his current term and not stand for re-election as a director at the Annual

Meeting, at which time the size of the Board will be automatically reduced from eight members to seven members. Accordingly, the proxies may not vote for the election of more than seven nominees for Director at the Annual Meeting.

The Board of Directors expects all nominees to be available for election. If any nominee should become unavailable to serve as a director for any reason prior to the Annual Meeting, the Board may substitute another person as a nominee. In that case, your shares will be voted for that other person.

 

 

The Board recommends that you vote “FOR” election of the seven nominees for director named in this proxy statement.

The biographies of each of the nominees below contain information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the Board to determine that the person should serve as a director for the Company.

 

Bruce R. Berkowitz

 

Director since 2016

Bruce R. Berkowitz, 58, serves as the Chief Investment Officer of Fairholme Capital Management, L.L.C., an investment adviser registered with the SEC since June 1997, and as President and a director of Fairholme Funds, Inc., a SEC-registered investment company providing investment management services to three mutual funds, a role he has held since December 1999. Mr. Berkowitz also is the Chairman of the Board of Directors of the Fairholme Trust Company, L.L.C., a Florida-chartered non-depository trust company. He also is the Managing Member of the General Partner of The Fairholme Partnership, LP and the Chairman of Board of Directors of Fairholme Offshore Partners Fund, Ltd., and has served as a non-executive Chairman and director of The St. Joe Company since March 2011. Mr. Berkowitz brings to the Board financial and business expertise from his position as an investment fund manager, as well as additional perspective as a longstanding significant stockholder in the Company.

Paul G. DePodesta

 

Director since 2012

Paul G. DePodesta, 44, is Chief Strategy Officer for the Cleveland Browns football team, and has served in that position since January 2016. From November 2010 until January 2016, he served as Vice President, Player Development & Amateur Scouting for the New York Mets major league baseball club. From November 2008 until November 2010, he served as Executive Vice President for the San Diego Padres major league baseball club. From July 2006 until November 2008, he served as Special Assistant for Baseball Operations with the San Diego Padres. For nine years prior to joining the San Diego Padres, Mr. DePodesta worked in a variety of positions with other major league baseball clubs, including time as the Executive Vice President and General Manager for the Los Angeles Dodgers major league baseball club. Mr. DePodesta brings to the Board extensive experience as a leader and manager, including expertise in evaluating, procuring and developing talent and in creating and using processes and systems to evaluate individuals, teams and organizations.

Kunal S. Kamlani

 

Director since 2014

Kunal S. Kamlani, 44, is President, ESL Investments, Inc., and has served in this position since March 2016. Prior to ESL, he was Chief Executive Officer of CASP Advisors, an independent advisory firm founded in 2015, which focuses on brand extension strategies, infrastructure development and mergers & acquisitions in the global cruise industry. Mr. Kamlani previously served as President and Chief Operating Officer of Prestige Cruise Holdings, the parent company of Oceania Cruises and Regent Seven Seas Cruises, from August 2011 until December 2014, prior to which he served as its chief financial officer from August 2009 to March 2010. From March 2010 to May 2011 he served as head of the Global Investment Solutions division of Bank of America/Merrill Lynch. Mr. Kamlani also served as Managing Director and Chief Operating Officer of Smith Barney from October 2006 until June 2009. Mr. Kamlani has served on the board of directors of Staples Inc. since June 2015. Mr. Kamlani brings to the Board extensive experience in corporate finance, operational excellence and organizational leadership.

William C. Kunkler, III

 

Director since 2009

William C. Kunkler, III, 60, is the Executive Vice President of Operations of CC Industries, Inc., an affiliate of Henry Crown and Company, and has served in that position, as well as other officer positions, since 1994. CC Industries, Inc. is a private equity firm focused on manufacturing companies and real estate investments. Mr. Kunkler has extensive manufacturing company experience and a thorough understanding of business operations, including finance and accounting principles and functions as well as operational methodologies, garnered from his experience as an executive officer and director of various companies. He also has strong ties to the Chicago area, the location of Sears Holdings Corporation’s corporate headquarters.

 

 

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Table of Contents

ITEM 1.    ELECTION OF DIRECTORS

 

Edward S. Lampert

 

Director since 2005

Edward S. Lampert, 54, is Chairman of our Board of Directors, and our Chief Executive Officer. He is also the Chairman and Chief Executive Officer of ESL Investments, Inc., which he founded in April 1988. Since July 2015, Mr. Lampert has served as Chairman of the Board of Trustees of Seritage Growth Properties. Mr. Lampert has extensive experience in business and finance, and he has invested in many retail companies. He also served as Chairman of the Board of Kmart Holding Corporation, a company that emerged from bankruptcy in 2003 and was transformed into a profitable business prior to its merger with Sears, Roebuck and Co. in 2005.

Ann N. Reese

 

Director since 2005

Ann N. Reese, 64, founded the Center for Adoption Policy in New York in 2001 and serves as its Co-Executive Director. Prior to founding the Center, Ms. Reese served as a Principal with Clayton, Dubilier & Rice, a private equity investment firm, in 1999 and 2000. From 1995 to 1998, she was Executive Vice President and Chief Financial Officer of ITT Corporation, a hotel and gaming company. Ms. Reese is a director of Xerox Corporation and Genesee & Wyoming Inc. Ms. Reese has extensive executive experience in corporate finance, financial reporting and strategic planning through her position as a public company chief financial officer as well as corporate governance expertise gained from her experience on other public company boards. Ms. Reese also served as a director of Kmart Holding Corporation, a company that emerged from bankruptcy in 2003 and was transformed into a profitable business prior to its merger with Sears, Roebuck and Co. in 2005.

Thomas J. Tisch

 

Director since 2005

Thomas J. Tisch, 62, has served as the Managing Partner of Four Partners, a private investment firm, since 1992. He has served as the Chancellor of Brown University since July 2007, and he is also a trustee of New York University Medical Center. Mr. Tisch served as a director of Synageva BioPharma Corp. from June 2012 until its acquisition by Alexion Pharmaceuticals, Inc. in June 2015. Mr. Tisch brings financial and general business expertise to the Sears Holdings Board from his position at a private investment firm. Mr. Tisch also served as a director of Kmart Holding Corporation, a company that emerged from bankruptcy in 2003 and was transformed into a profitable business prior to its merger with Sears, Roebuck and Co. in 2005.

 

 

The Nominating and Corporate Governance Committee of our Board of Directors is responsible for reviewing the qualifications and independence of members of the Board and its various committees on a periodic basis, as well as the composition of the Board as a whole. This assessment includes members’ qualification as independent and their economic interest in the Company through meaningful share

ownership, as well as consideration of diversity, skills and experience in relation to the needs of the Board. Director nominees will be recommended to the Board by the Nominating and Corporate Governance Committee in accordance with the policies and principles in its charter. While the Committee has the ability to retain a third party to assist in the nomination process, the Company did not pay a fee to any third party to identify or assist in identifying or evaluating potential nominees in fiscal year 2016. The ultimate responsibility for selection of director nominees resides with the Board of Directors.

While the Company does not have a formal diversity policy, as mentioned above, the Board considers diversity in identifying director nominees. The Board and the Nominating and Governance Committee believe that it is important that our directors represent diverse viewpoints. In addition to diversity of experience, the Nominating and Corporate Governance Committee seeks director candidates with a broad diversity of professions, skills and backgrounds.

You can nominate a candidate for election to the Board by complying with the nomination procedures in our By-Laws. For an election to be held at an annual meeting of stockholders, nomination by a stockholder must be made by notice in writing delivered to the Corporate Secretary not later than 90 days in advance of such meeting. However, if the annual meeting is not held on or within eight days of the fourth Tuesday in May of a year, and if the Company provides stockholders with less than 100 days’ notice or public disclosure of the meeting date, the stockholder notice must be given not later than the 10th day following the notice or public disclosure of the meeting date.

A stockholder’s notice to the Corporate Secretary must be in writing and be delivered to Sears Holdings Corporation, Law Department, 3333 Beverly Road, Hoffman Estates, Illinois 60179, Attn: Corporate Secretary. Currently, the By-Laws would require the following:

 

 

the name and address of the stockholder;

 

 

the name, age and business address of each nominee proposed in the notice;

 

 

such other information concerning each nominee as must be disclosed with respect to director nominees in proxy solicitations under the proxy rules of the SEC; and

 

 

the written consent of each nominee to serve as a director if so elected.

The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the procedures in the By-Laws. A stockholder’s compliance with procedures in the By-Laws will not require the Company to include information regarding a proposed nominee in the Company’s proxy solicitation materials.

The Board met 17 times during fiscal year 2016 (the fiscal year ended January 28, 2017). All of the then-directors attended at least 75% of the aggregate of the Board meetings and the meetings of the committees on which they then served. Our Corporate Governance Guidelines provide that directors are expected to attend the annual meeting of stockholders. All directors who stood for election at the 2016 annual meeting attended that meeting.

 

 

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Table of Contents

ITEM 1.    ELECTION OF DIRECTORS

 

Committees of the Board of Directors

The Board has Audit, Compensation and Nominating and Corporate Governance Committees in accordance with the NASDAQ listing rules. All members of the Audit, Compensation, and Nominating and Corporate Governance Committees are independent, as defined in the NASDAQ listing rules.

The table below reflects the current membership of each committee and the number of meetings held by each committee in fiscal year 2016.

 

      Audit        Compensation       

Nominating and
Corporate

Governance

 

C. Alvarez

               X  

B. Berkowitz

               X

P. DePodesta

          X          X  

K. Kamlani

            

W. Kunkler

     X            

E. Lampert

            

A. Reese

     X        X       

T. Tisch

     X          X     

2016 Meetings

     10          5          4  
*

Committee chair

Each committee operates under a written charter. The charters are available on the Corporate Governance section of our corporate website, www.searsholdings.com. The principal functions of each Committee are summarized below:

Audit Committee

 

 

 

Responsible for compensation and oversight of the work of the independent registered public accounting firm in connection with the annual audit report;

 

 

Hires, subject to stockholder ratification, the independent registered public accounting firm to perform the annual audit;

 

 

Reviews the Company’s annual and quarterly financial statements, including disclosures made in management’s discussion and analysis of results of operations and financial condition;

 

 

Reviews the reports prepared by the independent registered public accounting firm and management’s responses thereto;

 

 

Pre-approves audit and permitted non-audit services performed by the independent registered public accounting firm;

 

 

Reviews financial reports, internal controls and risk exposures;

 

 

Reviews management’s plan for establishing and maintaining internal controls;

 

 

Reviews the scope of work performed by the internal audit staff; and

 

 

Discusses with the Company’s Chief Compliance Officer matters that involve our compliance and ethics policies.

The Audit Committee has a Related Party Transactions Subcommittee (the “RPT Subcommittee”) to assist the Audit Committee by reviewing potential related party transactions; material amendments to, or modifications, terminations or extensions of agreements involving related party transactions; and the Company’s guidelines and policies with regard to related party transactions generally. The RPT Subcommittee may approve or pre-approve certain types of related party transactions (and present them to the Audit Committee or the Board at its next scheduled meeting) or may, if it deems it advisable, refer them to the Audit Committee or the Board for review. The RPT Subcommittee met 13 times in fiscal year 2016. The members of the RPT Subcommittee for fiscal year 2016 were Ms. Reese (chair), Mr. DePodesta and Mr. Kunkler.

 

 

Compensation Committee

 

 

 

Reviews recommendations for and approves the compensation of senior executive officers;

 

 

Reviews and approves corporate goals and objectives relevant to CEO compensation, evaluates the CEO’s performance and recommends to the Board the CEO’s overall compensation level;

 

 

Reviews and approves employment agreements, severance arrangements and change in control arrangements affecting the CEO and other senior executives;

 

Reviews compensation discussion and analysis for inclusion in the Company’s proxy statement; and

 

 

Evaluates whether the risks arising from the Company’s compensation policies and practices for its employees would be reasonably likely to have a material adverse effect on the Company.

 

 

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ITEM 1.    ELECTION OF DIRECTORS

 

Nominating and Corporate Governance Committee

 

 

 

Reports annually to the full Board with an assessment of the Board’s performance;

 

 

Recommends to the full Board the nominees for directors;

 

Reviews recommended compensation arrangements for the Board; and

 

 

Reviews and reassesses the adequacy of our Corporate Governance Guidelines.

 

 

Communications with the Board of Directors

 

You may contact any non-employee director, or the entire Board, at any time, subject to the exceptions described below. Your communication should be sent to the Sears Holdings Corporation Board of Directors—c/o Corporate Secretary, Sears Holdings Corporation, Law Department, 3333 Beverly Road, Hoffman Estates, Illinois 60179. Communications are distributed to the Board, a committee of the Board, or any Board

member as appropriate, depending on the facts and circumstances outlined in the communication. Certain items that are unrelated to the duties and responsibilities of the Board will be excluded, such as new product suggestions, resumes and other job inquiries, surveys and business solicitations or advertisements.

 

 

Board Leadership Structure

 

The Board has no policy that mandates the separation of the offices of Chairman of the Board and Chief Executive Officer. Under our Corporate Governance Guidelines, the Board believes that it is in the best interest of the Company to make such a determination at the time that it elects a new Chief Executive Officer. Mr. Lampert, our Chairman of the Board since 2004, was elected by the Board to the position of Chief Executive Officer in 2013, and has served in both capacities since

his appointment as Chief Executive Officer. The Board selected Mr. Lampert to ensure continuity of leadership, sharpen the Company’s strategy, continue the momentum of the transformation of the Company and accelerate the progress that the Company has made. The Company’s By-Laws provide that the independent directors may appoint a lead independent director to preside over each executive session of the independent directors.

 

 

The Board’s Role in Risk Oversight

 

Consistent with our leadership structure, our Chief Executive Officer and other members of senior management are responsible for the identification, assessment and management of risks that could affect the Company, and the Board provides oversight in connection with these efforts. The Board’s oversight is conducted primarily through committees of the Board, as disclosed in the descriptions of the Audit Committee and the Compensation Committee above and in the

charters of the Audit Committee and the Compensation Committee. The full Board has retained responsibility for general oversight of risks. The Board satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the Company, including our Chief Financial Officer and our General Counsel.

 

 

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Table of Contents

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

Security Ownership of Directors and Management

 

Except as otherwise set forth below, the following table sets forth information with respect to the beneficial ownership of our common stock as of March 13, 2017 by:

 

 

each of our directors and director nominees;

 

 

each named executive officer (as defined under “Summary Compensation Table”); and

 

 

all of our directors and executive officers as a group.

 

Name of Beneficial Owner(1)    Common Stock(2)     Percent of Class(3)  

Cesar L. Alvarez

           *  

Bruce R. Berkowitz

     27,634,248 (4)      25.8

Paul G. DePodesta

     3,045 (5)      *  

Jason M. Hollar

           *  

Kunal S. Kamlani

     500       *  

William C. Kunkler, III

     29,823 (6)      *  

Girish Lakshman

           *  

Edward S. Lampert

     62,990,028 (7)      58.8

Leena Munjal

     765       *  

Ann N. Reese

     12,059 (8)      *  

Robert A. Schriesheim

           *  

Sean Skelley

           *  

Thomas J. Tisch

     4,623,717 (9)      4.3

Stephan H. Zoll

           *  

Directors and Executive Officers as a group (18 persons)

     95,381,296       89.0
*

Less than 1%

(1)

The address of each beneficial owner is c/o Sears Holdings Corporation, 3333 Beverly Road, Hoffman Estates, Illinois 60179.

(2)

Ownership includes:

   

shares in which the director or executive officer may be deemed to have a beneficial interest; and

   

for executive officers, shares held as nontransferable restricted shares, which are subject to forfeiture under certain circumstances.

    

Unless otherwise indicated, the directors and executive officers listed in the table have sole voting and investment power with respect to the common stock listed next to their respective names. Information is provided for reporting purposes only and should not be construed as an admission of actual beneficial ownership.

(3)

The “Percent of Class” for each named person was calculated by using the disclosed number of beneficially owned shares as the numerator and 107,151,038, the number of shares of our common stock outstanding as of March 13, 2017 (plus for each named person, the number of shares of common stock not outstanding but for which such person is deemed to have beneficial ownership), as the denominator.

(4)

Please see footnotes (5) and (6) to the Security Ownership of 5% Beneficial Owners on page 13.

(5)

Includes 545 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares.

(6)

Includes (a) 23,147 shares that Mr. Kunkler has pledged as security for a loan to JPMorgan Chase Bank, N.A., (b) 4,787 shares that may be acquired by Mr. Kunkler within 60 days upon the exercise of warrants to purchase shares, (c) 1,573 shares held by his spouse, and (d) 316 shares that may be acquired by his spouse within 60 days upon the exercise of warrants to purchase shares. Mr. Kunkler disclaims beneficial ownership of the shares held, or that may be acquired, by his spouse.

(7)

Please see footnotes (3) and (4) to the Security Ownership of 5% Beneficial Owners on page 13.

(8)

Includes 2,059 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares.

(9)

Includes 2,405,236 shares owned by Andrew H. Tisch, Daniel R. Tisch and James S. Tisch, brothers of Thomas J. Tisch, or by trusts of which they are the managing trustees and beneficiaries, in respect of which Thomas J. Tisch has sole voting power, and 89,941 owned by two foundations over which Mr. Tisch exercises shared voting power. Thomas J. Tisch disclaims beneficial ownership of these shares. Also includes 1,258,259 additional shares over which Mr. Tisch has shared voting power.

 

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AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

 

Security Ownership of 5% Beneficial Owners

 

The following table sets forth information with respect to beneficial ownership of our common stock as of March 13, 2017 by persons known by us to beneficially own 5% or more of our outstanding common stock:

 

Name of Beneficial Owner   

Amount and Nature of

Beneficial Ownership(1)

    Percent
of Class(2)
 

ESL Investments, Inc. and related entities(3)

1170 Kane Concourse, Suite 200

Bay Harbor Islands, Florida 33154

     62,990,028 (4)      58.8

Fairholme Capital Management, L.L.C. and related entities(5)

4400 Biscayne Boulevard, 9th Floor

Miami, Florida 33137

     27,634,248 (6)      25.8
(1)

Information is provided for reporting purposes only and should not be construed as an admission of actual beneficial ownership.

(2)

The “Percent of Class” for each named person was calculated by using the disclosed number of beneficially owned shares as the numerator and 107,151,038, the number of shares of our common stock outstanding as of March 13, 2017 (plus for each named person, the number of shares of common stock not outstanding but for which such person is deemed to have beneficial ownership), as the denominator.

(3)

Beneficial ownership is based on ownership as set forth in the Schedule 13D/A filed by the following persons with the SEC on January 11, 2017, as updated by subsequent Form 4 filings on each of January 31, 2017 and March 2, 2017. The persons (“ESL Persons”) consist of ESL Investments, Inc., a Delaware corporation (“Investments”); Edward S. Lampert; ESL Partners, L.P., a Delaware limited partnership (“Partners”); SPE I Partners, LP, a Delaware limited partnership (“SPE Partners”); SPE Master I, LP, a Delaware limited partnership (“SPE Master”); and RBS Partners, L.P., a Delaware limited partnership (“RBS”). Mr. Lampert is Chairman, Chief Executive Officer and Director of Investments and a limited partner of RBS. Investments is the general partner of RBS and the manager of RBSIM. RBS is the general partner of Partners, SPE Partners and SPE Master.

(4)

Investments has sole voting power and sole dispositive power as to 25,344,444 shares of Sears Holdings (which includes 4,808,465 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares) and shared dispositive power as to 37,645,584 shares of Sears Holdings (which includes 6,328,687 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares); Edward S. Lampert has sole voting power as to 62,990,028 shares of Sears Holdings (which includes 11,137,152 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares), sole dispositive power as to 25,344,444 shares of Sears Holdings (which includes 4,808,465 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares) and shared dispositive power as to 37,645,584 shares of Sears Holdings (which includes 6,328,687 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares); RBS has sole voting power and sole dispositive power as to 25,344,444 shares of Sears Holdings (which includes 4,808,465 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares) and shared dispositive power as to 37,645,584 shares of Sears Holdings (which includes 6,328,687 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares); Partners has sole voting power and sole dispositive power as to 25,000,979 shares of Sears Holdings (which includes 4,808,465 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares) and shared dispositive power as to 37,645,584 shares of Sears Holdings (which includes 6,328,687 shares that may be acquired within 60 days upon the exercise of warrants to purchase shares); SPE Partners has sole voting power and sole dispositive power as to 150,124 shares of Sears Holdings; and SPE Master has sole voting power and sole dispositive power as to 193,341 shares of Sears Holdings.

(5)

Beneficial ownership is based on ownership as set forth in the Schedule 13D/A filed by Fairholme Capital Management, L.L.C., Bruce R. Berkowitz and Fairholme Funds, Inc. with the SEC on June 15, 2016, as updated by subsequent Form 4 filings on each of August 15, 2016, October 11, 2016, December 12, 2016, December 27, 2016 and March 14, 2017.

(6)

The shares of common stock are owned, in the aggregate, by Bruce R. Berkowitz and various investment vehicles managed by Fairholme Capital Management, L.L.C. (“FCM”). FCM disclosed shared voting power as to 20,758,473 shares of Sears Holdings and shared dispositive power as to 27,562,548 shares of Sears Holdings. Fairholme Funds, Inc. disclosed shared voting power and shared dispositive power as to 16,291,673 shares of Sears Holdings, of which 14,497,773 shares are owned by The Fairholme Fund and 1,793,900 shares are owned by The Fairholme Allocation Fund, each a series of Fairholme Funds, Inc. Bruce R. Berkowitz disclosed sole voting power and sole dispositive power as to 913,000 shares of Sears Holdings, shared voting power as to 20,758,473 shares of Sears Holdings and shared dispositive power as to 27,562,548 shares of Sears Holdings. Because Mr. Bruce R. Berkowitz, in his capacity as the Managing Member of FCM or as President of Fairholme Funds, Inc., has voting or dispositive power over all shares beneficially owned by FCM, he is deemed to have beneficial ownership of all of the shares. Additionally, Mr. Berkowitz has sole beneficial ownership and voting power over 71,700 shares of Sears Holdings, for an aggregate beneficial ownership of 27,634,248.

 

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

 

Investment of Surplus Cash

Our Board has delegated authority to direct investment of our surplus cash to Mr. Lampert, subject to various limitations that have been or may be from time to time adopted by the Board of Directors and/or the Finance Committee of the Board of Directors. Mr. Lampert is Chairman of our Board of Directors and its Finance Committee and is the Chairman and Chief Executive Officer of ESL Investments, Inc. (together with its affiliated funds, “ESL”). Mr. Lampert is also our Chief Executive Officer. Neither Mr. Lampert nor ESL will receive compensation for any such investment activities undertaken on our behalf, other than Mr. Lampert’s compensation as our Chief Executive Officer. ESL beneficially owned approximately 48% of our outstanding common stock at January 28, 2017.

Further, to clarify the expectations that the Board of Directors has with respect to the investment of our surplus cash, the Board has renounced, in accordance with Delaware law, any interest or expectancy of the Company associated with any investment opportunities in securities that may come to the attention of Mr. Lampert or any employee, officer, director or advisor to ESL and its affiliated investment entities (each, a “Covered Party”) who also serves as an officer or director of the Company other than (a) investment opportunities that come to such Covered Party’s attention directly and exclusively in such Covered Party’s capacity as a director, officer or employee of the Company, (b) control investments in companies in the mass merchandising, retailing, commercial appliance distribution, product protection agreements, residential and commercial product installation and repair services and automotive repair and maintenance industries and (c) investment opportunities in companies or assets with a significant role in our retailing business, including investment in real estate currently leased by the Company or in suppliers for which the Company is a substantial customer representing over 10% of such companies’ revenues, but excluding investments of ESL that were existing as of May 23, 2005.

Unsecured Commercial Paper

During fiscal year 2016, ESL and its affiliates held unsecured commercial paper issued by Sears Roebuck Acceptance Corp. (“SRAC”), an indirect wholly owned subsidiary of Sears Holdings. For the commercial paper outstanding to ESL, the weighted average of each of maturity, annual interest rate, and principal amount outstanding for this commercial paper in fiscal year 2016 was 21 days, 7.87% and $100 million, respectively. The largest aggregate amount of principal outstanding to ESL at any time since the beginning of fiscal year 2016 was $245 million and the aggregate amount of interest paid by SRAC to ESL during fiscal year 2016 was $8 million. ESL and Mr. Lampert held none of our commercial paper at January 28, 2017. During fiscal year 2016, Fairholme and its affiliates held unsecured commercial paper issued by SRAC. For the commercial paper outstanding to Fairholme, the weighted average of each maturity, annual interest rate, and principal amount outstanding for this commercial paper was 63 days, 7.42% and $1.3 million in 2016. The largest aggregate amount of principal outstanding to Fairholme at any time since the beginning of 2016 was $5 million and the aggregate amount of interest paid by SRAC to Fairholme during fiscal year 2016 was $109,000. The commercial paper purchases were made in the ordinary course of business on substantially the same terms, including interest rates, as terms prevailing for comparable transactions with other persons.

2016 Secured Loan Facility

On April 8, 2016, the Company, through Sears, Roebuck and Co., Sears Development Co., Innovel Solutions, Inc., Big Beaver of Florida Development, LLC and Kmart Corporation (collectively, “2016 Secured Loan Borrowers”), entities wholly-owned and controlled, directly or indirectly by the Company, obtained a $500 million secured short-term loan facility (the “2016 Secured Loan Facility”) from JPP, LLC, JPP II, LLC, and Cascade Investment, L.L.C. Mr. Lampert, the Company’s Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL, which controls JPP, LLC and JPP II, LLC. $250 million was funded under the 2016 Secured Loan Facility on April 8, 2016 and the remaining $250 million was funded on April 22, 2016. The 2016 Secured Loan Facility has an annual base interest rate of 8%, with accrued interest payable monthly during the term of the 2016 Secured Loan Facility. The 2016 Secured Loan Borrowers paid an upfront commitment fee equal to 1.0% of the full principal amount of the 2016 Secured Loan Facility and also were required to pay a funding fee equal to 1.0% of the amounts drawn under the 2016 Secured Loan Facility at the time such amounts were drawn. A delayed origination fee equal to 0.5% of amounts remaining outstanding or committed under the 2016 Secured Loan Facility after nine months was paid, and if amounts remain outstanding or committed under the 2016 Secured Loan Facility after 12 months, an additional delayed origination fee equal to 0.5% of such amounts becomes payable. At January 28, 2017, the entities affiliated with ESL held $216 million of principal amount of the 2016 Secured Loan Facility.

2016 Term Loan

In April 2016, the Company, through Sears Roebuck Acceptance Corp. and Kmart Corporation, obtained a $750 million senior secured term loan under the Amended Domestic Credit Agreement, dated July 21, 2015, with a syndicate of lenders, including $146 million (net of original issue discount) from JPP, LLC and JPP II, LLC, entities affiliated with ESL, and $100 million from the Company’s domestic pension plan. At January 28, 2017, JPP LLC and JPP II, LLC, and the Company’s domestic pension plans held $150 million and $100 million, respectively, of principal amount of the 2016 Term Loan.

Second Lien Credit Agreement

On September 1, 2016, the Company, through Sears Roebuck Acceptance Corp. and Kmart Corporation (together, the “Second Lien Borrowers”) entered into a Second Lien Credit Agreement (the “Credit Agreement”) with the Second Lien Lenders (as defined below) and JPP, LLC, as administrative agent and collateral administrator (the “Agent”), pursuant to which the Second Lien Borrowers borrowed $300 million of term loans (the “Term Loan”). Mr. Lampert, the Company’s Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL, which controls JPP, LLC and JPP II, LLC, the lenders under the Credit Agreement (the “Second Lien Lenders”). The maturity date for the Term Loan is July 20, 2020 and the Term Loan will not amortize. The Credit Agreement includes an accordion feature that allows the Second Lien Borrowers to seek to obtain from third parties up to $200 million of additional loans under the Credit Agreement on the same terms as the Term Loan. The Term Loan will bear interest at a rate equal to, at the election of the Second Lien Borrowers, either LIBOR (subject to a 1.00% floor) or a specified prime

 

 

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

 

rate (“Base Rate”), in either case plus an applicable margin. The margin with respect to the Term Loan is 7.50% for LIBOR loans and 6.50% for Base Rate loans. At January 28, 2017, the entities affiliated with ESL held $300 million of principal amount of the Second Lien Credit Agreement.

Letter of Credit Facility Agreement

On December 28, 2016, the Company, through Sears Roebuck Acceptance Corp. and Kmart Corporation, entities wholly-owned and controlled, directly or indirectly by the Company, entered into a Letter of Credit and Reimbursement Agreement (the “LC Facility Agreement”) providing for a $500 million secured standby letter of credit facility (the “LC Facility”) from JPP, LLC and JPP II, LLC (collectively, the “LC Lenders”), with Citibank, N.A., serving as administrative agent and issuing bank (the “Issuing Bank”). Mr. Lampert, the Company’s Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL, which controls JPP, LLC and JPP II, LLC. On December 28, 2016, $200 million of commitments were made available under the LC Facility, and, subject to approval of the LC Lenders, up to an additional $300 million in commitments may be obtained by the Company from the LC Lenders (or other lenders) prior to December 28, 2017, the maturity date of the LC Facility.

2017 Secured Loan Facility

On January 3, 2017, the Company, through Sears, Roebuck and Co., Kmart Stores of Illinois LLC, Kmart of Washington LLC and Kmart Corporation (collectively, “2017 Secured Loan Borrowers”), entities wholly-owned and controlled, directly or indirectly by the Company, obtained a $500 million secured loan facility (the “2017 Secured Loan Facility”) from JPP, LLC and JPP II, LLC (collectively, the “Lenders”). Mr. Lampert, the Company’s Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL, which controls JPP, LLC and JPP II, LLC. $321 million was funded under the 2017 Secured Loan Facility on January 3, 2017, and an additional $179 million was drawn by the Company prior to January 28, 2017. The 2017 Secured Loan Facility matures on July 20, 2020. The 2017 Secured Loan Facility has an annual base interest rate of 8%, with accrued interest payable monthly during the term of the 2017 Secured Loan Facility. The 2017 Secured Loan Borrowers paid an upfront commitment fee equal to 1.0% of the full principal amount of the 2017 Secured Loan Facility and also paid a funding fee equal to 1.0% of the amounts drawn under the 2017 Secured Loan Facility at the time such amounts were drawn. At January 28, 2017, the entities affiliated with ESL held $500 million of principal amount of the 2017 Secured Loan Facility.

Senior Secured Notes and Subsidiary Notes

At January 28, 2017 and January 30, 2016, respectfully, Mr. Lampert and ESL held an aggregate of $11 million of principal amount of the Company’s 6 5/8% Senior Secured Notes due 2018 (the “Senior Secured Notes”). At January 28, 2017, Fairholme held an aggregate of approximately $46 million of principal of the Company’s Senior Secured Notes. At January 30, 2016, Fairholme held an aggregate of $22 million of principal amount of the Company’s Senior Secured Notes.

Subsidiary Notes

At January 28, 2017, Mr. Lampert and ESL held an aggregate of $3 million of principal amount of unsecured notes issued by SRAC (the “Subsidiary Notes”).

At January 28, 2017, Fairholme held an aggregate of $14 million of principal amount of the Subsidiary Notes.

Senior Unsecured Notes and Warrants

At January 28, 2017, Mr. Lampert and ESL held an aggregate of approximately $188 million of principal amount of the Company’s Senior Unsecured Notes and 10,033,472 warrants to purchase shares of Holdings common stock.

At January 28, 2017, Fairholme held an aggregate of approximately $357 million of principal amount of the Company’s Senior Unsecured Notes and 6,713,725 warrants to purchase shares of Holdings common stock.

Sears Canada

ESL owns approximately 45% of the outstanding common shares of Sears Canada Inc. (“Sears Canada”) (based on publicly available information as of January 5, 2016). Fairholme owns approximately 20% of the outstanding common shares of Sears Canada (based on publicly available information as of November 30, 2016).

The Company and certain of its subsidiaries engage in transactions with Sears Canada pursuant to the following agreements and arrangements: (1) a licensing agreement pursuant to which the Company gives Sears Canada a royalty-free license to use the name “Sears” as part of Sears Canada’s corporate name, as well as to use other brand names such as Kenmore and DieHard; (2) an information technology agreement pursuant to which the Company and Sears Canada share information technology and software development, ownership and costs; (3) an import services agreement pursuant to which a subsidiary of the Company will perform certain import services at Sears Canada’s request, including coordination of merchandise shipments and inspections of imported merchandise; and (4) the performance by the Company of other services for Sears Canada outside the scope of the foregoing agreements on market terms and conditions which may include, among other services, financial advisory, operations and maintenance, development, and operations management. In fiscal year 2016, Sears Canada paid the Company or its subsidiaries an aggregate of approximately $3 million, and the Company or its subsidiaries paid Sears Canada approximately $176,000, under the foregoing arrangements.

Lands’ End

ESL owns approximately 59% of the outstanding common stock of Lands’ End (based on publicly available information as of January 5, 2017). Fairholme owns approximately 11% of the outstanding common shares of Lands’ End (based on publicly available information as of October 11, 2016). Holdings and certain of its subsidiaries entered into a transition services agreement in connection with the spin-off pursuant to which Lands’ End and Holdings provide to each other, on an interim, transitional basis, various services, which may include, but are not limited to, tax services, logistics services, auditing and compliance services, inventory management services, information technology services and continued participation in certain contracts shared with Holdings and its subsidiaries, as well as agreements related to Lands’ End Shops at Sears and participation in the Shop Your Way® program.

Amounts due to or from Lands’ End are non-interest bearing, and generally settled on a net basis. Amounts related to revenue from retail services and rent for Lands’ End Shops at Sears, participation in the Shop Your Way program and corporate shared services were $65 million during fiscal year 2016. The amounts Lands’ End earned

 

 

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related to call center services and commissions were $10 million during fiscal year 2016. The Company also paid Lands’ End approximately $1.6 million for uniforms and work-related clothing, $659,000 related to inventory for resale in one Kmart store, and $447,000 for Lands’ End merchandise purchased via Sears.com Marketplace sales in fiscal 2016.

Sears Hometown

On October 11, 2012, the Company completed the separation of our Sears Hometown and Outlet businesses through a rights offering (the “Sears Hometown separation”). ESL owns approximately 57% of the outstanding common stock of Sears Hometown and Outlet Stores, Inc. (“Sears Hometown”) (based on publicly available information as of December 1, 2016). The Company and certain of its subsidiaries engage in transactions with Sears Hometown pursuant to various agreements with Sears Hometown which, among other things, (1) govern the principal transactions relating to the rights offering and certain aspects of our relationship with Sears Hometown following the Sears Hometown separation, (2) establish terms under which Sears Holdings and certain of its subsidiaries will provide Sears Hometown with services, and (3) establish terms pursuant to which Sears Holdings and certain of its subsidiaries will obtain merchandise for Sears Hometown.

These agreements were made in the context of a parent-subsidiary relationship and were negotiated in the overall context of the Sears Hometown separation. A summary of the nature of related party transactions involving Sears Hometown is as follows:

Sears Hometown obtains a significant amount of its merchandise from the Company. We have also entered into certain agreements with Sears Hometown to provide logistics, handling, warehouse and transportation services. Sears Hometown also pays a royalty related to the sale of Kenmore, Craftsman and DieHard products and fees for participation in the Shop Your Way program.

Sears Hometown receives amounts from the Company for the sale of merchandise made through www.sears.com, extended service agreements, delivery and handling services and credit revenues.

The Company provides Sears Hometown with shared corporate services. These services include accounting and finance, human resources, information technology and real estate.

Amounts due to or from Sears Hometown are non-interest bearing and generally settled on a net basis. The Company invoices Sears Hometown on a weekly basis. Amounts related to the sale of inventory and related services, royalties, and corporate shared services were $1.2 billion during fiscal year 2016. The net amounts Sears Hometown earned related to commissions were $82 million during fiscal year 2016. Additionally, the Company has guaranteed lease obligations for certain Sears Hometown store leases that were assigned as a result of the Sears Hometown separation.

Also in connection with the Sears Hometown separation, the Company entered into an agreement with Sears Hometown and the agent under Sears Hometown’s secured credit facility, whereby the Company committed to continue to provide services to Sears Hometown in connection with a realization on the lender’s collateral after default under the secured credit facility, notwithstanding Sears Hometown’s default under the underlying agreement with us, and to provide certain notices and services to the agent, for so long as any obligations remain outstanding under the secured credit facility.

During fiscal year 2016, the Company also paid Sears Hometown approximately $236,000 for purchases in Sears Hometown, Sears Outlet and Sears Hardware stores related to merchandise used for in-home service repairs (inventory for resale) and local purchases.

Seritage

On July 7, 2015, Sears Holdings completed its rights offering and sale-leaseback transaction (the “Seritage transaction”) with Seritage Growth Properties (“Seritage”), a recently formed, independent publicly traded real estate investment trust (“REIT”). As part of the Seritage transaction, the Company sold 235 properties to Seritage (the “REIT properties”) along with Holdings’ 50% interest in certain joint ventures. The Company received aggregate gross proceeds from the Seritage transaction of $2.7 billion ($2.6 billion, net of closing costs). The Seritage transaction was partially financed through the sale of common shares and limited partnership units, totaling $1.6 billion, including $745 million received from ESL and its affiliates and $297 million received from Fairholme and its affiliates. ESL owns approximately 7.9% of the total voting power of Seritage, and approximately 43.5% of the limited partnership units of Seritage Growth Properties, L.P. (the “Operating Partnership”), the entity that now owns the properties sold by the Company in the Seritage transaction and through which Seritage conducts its operations (based on publicly available information as of August 14, 2015). Mr. Lampert is also currently the Chairman of the Board of Trustees of Seritage. Fairholme owns approximately 14% of the outstanding Class A common shares of Seritage and 100% of the outstanding Class C non-voting common shares of Seritage (based on publicly available information as of February 16, 2016).

In connection with the Seritage transaction, the Company entered into agreements with Seritage under which the Company leases 255 of the properties (the “Master Leases”), with the remaining properties being leased by Seritage to third parties. The Master Leases generally are triple net leases with respect to the space occupied by the Company, and the Company has the obligation to pay rent, costs and expenses of operation, repair, and maintenance of the space occupied. The Master Leases have an initial term of 10 years and provide the Company three options for five-year renewals of the term and a final option for a four-year renewal. Seritage has a recapture right with respect to approximately 50% of the space within the stores (subject to certain exceptions), in addition to all of the automotive care centers which are free-standing or attached as “appendages”, and all outparcels or outlots, as well as certain portions of parking areas and common areas, except as set forth in the Master Leases, for no additional consideration. With respect to 21 stores identified in the Master Leases, Seritage has the additional right to recapture 100% of the space within the Company’s main store, effectively terminating the Master Leases with respect to such properties. The Master Leases also provide the Company certain rights to terminate the Master Leases with respect to properties that cease to be profitable for operation by the Company. In order to terminate the Master Lease with respect to a certain property, the Company must make a payment to Seritage of an amount equal to one year of rent (together with taxes and other expenses) with respect to such property. Such termination right, however, is limited so that it will not have the effect of reducing the fixed rent under the Master Lease for the REIT properties by more than 20% per annum.

Also, in connection with the Seritage transaction, the Company assigned its lease agreements with third party tenants for REIT properties to Seritage, and assigned rental income from Lands’ End for REIT properties to Seritage.

The initial amount of aggregate annual base rent under the Master Lease is $134 million, with increases of 2% per year beginning in the second lease year. In addition to base rent under the Master Lease, the Company pays monthly installment expenses for property taxes and insurance at all REIT properties where the Company is a tenant and installment expenses for common area maintenance, utilities and other operating expenses at REIT properties that are multi-tenant locations where Sears Holdings and other third parties are tenants. The initial amount of installment expenses under the Master Lease is $70 million, and will be reconciled annually based on actual installment expenses.

 

 

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The Company paid Seritage $138 million rent and $64 million installment expenses during fiscal year 2016.

The Company and Seritage entered into a transition services agreement pursuant to which the Company will provide certain limited services to Seritage for up to 18 months. The services include specified facilities management, accounting, treasury, tax, information technology, risk management, human resources, and related support services. Under the terms of the transition services agreement, the scope and level of

the facilities management services will be substantially consistent with the scope and level of the services provided in connection with the operation of the transferred properties held by the Company prior to the closing of the Seritage transaction. Amounts due from Seritage are generally settled on a net basis. The Company invoices Seritage on at least a monthly basis. The majority of the services under the transition services agreement with Seritage have expired or have been terminated. Seritage also reimbursed the Company for payments made on their behalf pursuant to the transition services agreement.

 

 

REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS

 

The Company’s Audit Committee charter requires that the Audit Committee review and approve all related party transactions required to be disclosed pursuant to SEC rules. The Audit Committee has adopted a written Related Party Transactions Policy that governs the Audit Committee’s practices with respect to related party transactions. In doing so, the Audit Committee takes into account, among other factors it deems appropriate, whether the transaction is on terms that are no less favorable to the Company or its subsidiaries than would be obtained in a comparable arm’s-length transaction and the extent of the

related person’s interest in the transaction. In addition, the Audit Committee has established the RPT Subcommittee to assist the Audit Committee by reviewing potential related party transactions; any material amendments to, or modifications, terminations or extensions of agreements involving related party transactions; and the Company’s guidelines and policies with regard to related party transactions generally. See, “Election of Directors—Committees of the Board of Directors—Audit Committee.”

 

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Summary

 

 

This Compensation Discussion and Analysis provides information relevant to understanding the fiscal year 2016 compensation of the executive officers identified in the Summary Compensation Table below, whom we refer to as our named executive officers. Our named executive officers are:

 

 

Edward S. Lampert, Chief Executive Officer

 

 

Robert A. Schriesheim, Former Executive Vice President and Chief Financial Officer

 

 

Jason M. Hollar, Chief Financial Officer

 

 

Girish Lakshman, President, Fulfillment—Supply Chain and Sourcing

 

 

Stephan H. Zoll, President, Online

 

 

Sean Skelley, President, Home Services

Our compensation policies and objectives during fiscal year 2016 were primarily influenced by our recent poor operating performance, the retail market conditions and the related impacts to our financial results. As a

result, the Compensation Committee continued to take a fiscally conservative approach to compensation programs in fiscal year 2016.

Sears Holdings believes that its long-term success is directly related to our ability to attract, motivate and retain highly talented associates who are committed to the Company’s mission, key results and cultural beliefs. The Compensation Committee has developed a compensation philosophy for our named executive officers designed to pay for performance. Total annual compensation paid to the named executive officers generally depends on Company financial performance, business unit performance, the level of job responsibility and individual performance, as well as the need to attract, retain and motivate top executive talent. The Compensation Committee also believes that compensation should reflect the value of positions in the marketplace. The Compensation Committee also noted the approval of executive compensation by the Company’s stockholders by a large majority in the advisory vote on this subject held at the 2016 annual meeting and believes this affirms our stockholders’ support for the Company’s approach to executive compensation.

 

 

Compensation Practices

 

 

Our experience demonstrates that in order to attract qualified external candidates and motivate valuable executive officers, we must offer executive compensation packages that are competitive with the packages offered by companies with which Sears Holdings competes for talent. In making compensation recommendations for the executive officers, we analyze internal compensation and external market data. We gather market data with a focus, where appropriate, on retail-specific and online-specific organizations. We do not benchmark against a set list of competitors or a peer group. We believe that our competitive pay analyses provide a reference point in validating proposed or recommended compensation, thereby assuring that we are offering competitive pay packages to the named executive officers.

We have also maintained compensation practices that we believe contribute to prudent governance.

 

 

We maintain a recoupment or “clawback” provision in the annual incentive plan and the long-term incentive program. These clawback

   

provisions provide that the Company will seek reimbursement from executive officers if the Company’s financial statements or approved financial measures under the applicable plan or program are subject to restatement due to error or misconduct, to the extent permitted by law.

 

 

The Compensation Committee’s charter provides that the Compensation Committee will evaluate whether the risks arising from the Company’s compensation policies and practices for its employees would be reasonably likely to have a material adverse effect on the Company.

 

 

The Compensation Committee’s charter also provides that it has the sole authority (1) to retain and terminate any compensation consultant to be used to assist it in the evaluation of executive compensation and (2) to establish all terms and conditions of the consultant’s engagement.

 

 

Executive Compensation Program: Key Elements

 

 

The key elements of our compensation program for the named executive officers include base salary and incentive opportunities. Incentive opportunities include annual and long-term performance-based programs designed to drive long-term performance through

effective decision-making while also rewarding appropriate short-term decision-making. In addition, time-based cash awards and/or time-based equity awards (i.e., awards that vest with the passage of time and thus are “at risk”) are granted to encourage retention.

 

 

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Annual Compensation

 

 

Base Salary—Base salary is the fixed element of each named executive officer’s cash compensation.

 

 

Annual Incentive Plan—Our annual incentive program is designed to provide annual awards to eligible employees based on achievement of financial performance goals relating to a specific fiscal year. The purpose of our annual incentive program is to motivate participants, including our participating named executive officers, to help the business achieve annual financial performance goals by making their cash incentive award variable and dependent upon Sears Holdings’ or its respective business units’ annual financial performance.

 

 

Annual Equity Award to Mr. Lampert—As compensation for his service as our Chief Executive Officer, Edward S. Lampert is entitled to receive monthly awards of Sears Holdings common stock. See “Fiscal Year 2016 CEO Compensation” on page 24.

Long-Term Compensation

 

 

Time-Based Cash and Equity Compensation—Awards of time-based cash and equity are subject to risk of forfeiture, i.e., are “at risk,” and encourage executive officers to adopt longer term approaches to our business. Time-based equity compensation also aligns the executive officers’ interests with our stockholders as value received will be consistent with return to our stockholders, with vesting schedules that generally range from two to four years.

 

 

Long-Term Performance-Based Programs—Our long-term incentive programs include performance-based programs that are designed to motivate our executive officers to focus on long-term Company performance through awards generally based on three-year performance periods. These programs reinforce accountability by linking executive compensation to performance goals. Sears Holdings believes that these programs are an important instrument in aligning the goals of the participating named executive officers with the Company’s strategic direction and initiatives, which the Company believes will result in increased returns to our stockholders.

 

 

When making individual compensation decisions for our named executive officers, the Compensation Committee takes many factors into account, including: the individual’s performance and experience; the performance of the Company overall; retention risk; the responsibilities, impact and importance of the position within the Company; the individual’s expected future contributions to the Company; and the individual’s historical compensation. There is not a pre-established policy or target for the allocation between annual and long-term incentive compensation. Instead, the Compensation Committee takes a holistic approach to executive compensation and balances the compensation elements for each named executive officer individually.

How Elements Are Used to Achieve Our Compensation Objectives

 

 

In fiscal year 2016, the Compensation Committee sought to achieve the objectives of our compensation program through the grant of annual or long-term incentive awards, or both, to our named executive officers. The 2016 annual incentive awards offer participating named executive officers an opportunity for cash compensation (or, in the case of Mr. Lampert, cash or equity compensation) based upon SHC EBITDA (earnings before interest, taxes, depreciation and amortization) or a combination of SHC EBITDA and business unit operating profit (“BOP”), in each case for the fiscal year.

The Compensation Committee granted long-term performance-based awards to certain of our named executive officers that become payable in cash following a three-year performance cycle upon achievement of SHC EBITDA during the three-year performance period. The Compensation Committee also granted long-term time-based awards to certain of our named executive officers that become payable in cash following the three-year service period, provided that the participating named executive officer is actively employed on the vesting date. The 2016 long-term incentive awards are designed to retain and motivate our participating named executive officers to focus on long-term financial performance of the Company.

The Compensation Committee believes that the most fair and effective way to motivate the Company’s named executive officers to produce the best results for its stockholders is to increase the proportion of an executive officer’s total compensation that is performance-based or otherwise “at risk,” including equity compensation, as the executive’s ability to affect those results increases. Additionally, the Compensation Committee believes that the value of incentive compensation should depend upon the performance of the Company and/or its business units in a given performance period or over the applicable vesting period.

Except for Mr. Lampert, the annual incentive plan (“AIP”) targets for the Company’s participating named executive officers in fiscal year 2016 were calculated based on a multiple of base salary, which ranged from 1.0 to 1.5. Mr. Lampert’s AIP target in fiscal year 2016 was $2,000,000. Target AIP opportunities for the participating named executive officers are generally established when the Compensation Committee approves a new annual incentive plan or at the time the Compensation Committee otherwise approves a compensation package for a newly hired or promoted participating named executive officer. Target AIP opportunities are based upon the participating named executive officer’s relative level of responsibility and potential to affect the Company’s overall performance. The performance-based long-term awards and time-based long-term awards granted to the Company’s participating named executive officers under the long-term incentive programs in fiscal year 2016 also were calculated based on a multiple of base salary, which ranged from 1.0 to 1.03. The Target AIP opportunities are determined based on a combination of several factors including internal equity/job level, prior compensation levels, market rates and individual negotiations with candidates.

The Compensation Committee determines whether the applicable financial performance targets have been attained under our applicable annual and long-term performance-based incentive programs. The Compensation Committee has not exercised its discretion to adjust performance targets or payout amounts for any of our participating named executive officers. The Compensation Committee also considers the requirements of Internal Revenue Code Section 162(m) (“Section 162(m)”). The impact of Section 162(m) on compensation awarded to our named executive officers is described in “Certain Tax Consequences” on page 24 of this proxy statement.

 

 

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Fiscal Year 2016 Compensation Decisions

 

 

During fiscal year 2016, the Compensation Committee worked with senior management of the Company in determining named executive officers’ total compensation. Management presented recommendations

to the Compensation Committee regarding a named executive officer’s total compensation for review and final approval.

 

 

2016 Base Salaries

 

 

Base salaries are set to reflect: a named executive officer’s performance and experience; the individual’s expected future contributions to the Company; the responsibilities, impact and importance of the position within the Company; internal pay equity; and competitive pay research. The timing and amount of base salary increases depend on the named executive officer’s past performance, promotion or other change in responsibilities, expected future contributions to the Company and current market competitiveness; provided, however, that Mr. Lampert’s annual base salary does not reflect the foregoing factors.

Mr. Lampert received a salary of $1.00 for fiscal year 2016. Mr. Zoll joined the Company in June 2016, and his 2016 base salary was $725,000. The base salaries of Messrs. Lakshman, Schriesheim and Skelley remained unchanged for fiscal year 2016 from fiscal year 2015. In connection with his promotion to Chief Financial Officer, Mr. Hollar’s base salary was increased to $700,000, effective October 14, 2016.

 

 

2016 Annual Incentive Plan Opportunity

 

 

The AIP is a cash-based (or, in the case of Mr. Lampert, cash or equity-based) program that is intended to reward participants, including our named executive officers, for their contributions to the achievement of certain SHC EBITDA, BOP or other financial goals or a combination of these goals. The Compensation Committee approved 2016 performance measures under the AIP (together with the AIP plan

document, the “2016 AIP”). Any payouts under the 2016 AIP generally were designed to range up to 200% of the target incentive award, at maximum level of performance. The following table sets forth the primary financial performance goals for each of our named executive officers under the 2016 AIP.

 

 

For fiscal year 2016, the Target AIP opportunity and financial performance measures for the named executive officers were as follows:

 

            Financial Performance Weighting  
Named Executive Officer   

Target AIP

Opportunity

    

SHC

EBITDA

    Overall
Operating
BU BOP
    Online BOP     Home
Services
BOP
 

Edward S. Lampert

   $ 2,000,000        100      

Robert A. Schriesheim

   $ 1,200,000        100      

Jason M. Hollar

   $ 600,000        100      

Girish Lakshman

   $ 1,200,000        100      

Stephan H. Zoll

   $ 725,000        34     33     33  

Sean Skelley

   $ 800,000        25                     75

 

SHC EBITDA under the 2016 AIP is defined as earnings of the Company before interest, taxes, depreciation and amortization for the performance period computed as operating income (loss) on the statement of operations of the Company for the applicable reporting period, adjusted for depreciation and amortization and gains/(losses) on the sales of assets. In addition, it is adjusted to exclude:

 

 

significant litigation or claim judgments or settlements (defined as matters which are $1 million or more) including the costs related thereto;

 

 

the effect of purchase accounting and changes in accounting methods;

 

 

gains, losses and costs associated with acquisitions, divestitures and store closings;

 

 

impairment charges;

 

 

pension expense;

 

 

costs related to restructuring activities; and

 

 

effect of any items classified as “extraordinary items” in the Company’s financial statements.

The SHC EBITDA incentive target contemplates that the Company remains approximately the same size over the performance period. If after the beginning of the performance period, the Company divests itself of assets or an entity equal or greater in value than $100,000,000, the SHC EBITDA target amount for the performance period will be decreased by the actual SHC EBITDA of such assets or entity for the portion of the last full fiscal year prior to the divestiture corresponding to the portion of the performance period (in which the divestiture occurs) remaining after the divestiture occurs.

We continue to use SHC EBITDA as a performance goal because it is a key metric used by management to measure business performance. We also believe that it accurately reflects our compensation philosophy of encouraging growth and creating increased stockholder value through the efficient use of corporate assets.

BOP for each business unit of the Company that is covered by the 2016 AIP is defined as SHC EBITDA, as adjusted as described above if related to the business unit, as reported in the Company’s internal operating statements. We believe that BOP performance goals support our financial goals by reinforcing responsibility and accountability at the business unit level.

 

 

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In establishing financial business goals for the fiscal year to be approved by the Compensation Committee, factors such as our prior fiscal year financial business results, our competitive situation, our evaluation of market trends, as well as the general state of the economy and our business were all considered. For fiscal year 2016, threshold, target and maximum performance goals were established for SHC EBITDA and BOP components as follows:

 

     % of Target Performance Goal  
Financial Measure    Threshold     Target     Maximum  

SHC EBITDA

     0 %(b)      100     200

Overall Operating BU BOP(a)

     31     100     169

Online BOP (Zoll)

     73     100     127

Homes Services BOP (Skelley)

     39     100     161
(a)

The threshold and maximum levels of performance for the Overall Business Unit BOP goal was based on the weighted average of each of the 21 business units that comprise the measure.

(b)

The threshold level of performance for SHC EBITDA was $0.

 

Messrs. Hollar, Skelley and Zoll earned an annual incentive payment under the 2016 AIP that was less than the minimum annual bonus

guaranteed in their respective offer letter. None of the other named executive officers are expected to receive a payout under the 2016 AIP.

 

 

Long-Term Incentive Opportunities

 

 

Long-term compensation opportunities for fiscal year 2016 consisted of performance-based awards under the Sears Holdings Corporation Long-Term Incentive Program (“LTIP”) and time-based awards under the Sears Holdings Corporation Cash Long-Term Incentive Plan (the “Cash LTI”). In fiscal year 2016, the Compensation Committee approved 2016 performance goals, measures, definitions and other particulars under the LTIP (together with the LTIP plan document, the “2016 LTIP”) and 2016 particulars under the Cash LTI (together with the Cash LTI plan document, the “2016 Cash LTI”).

In making compensation decisions, no formal weighting formula is used in determining individual award amounts under our long-term incentive programs. Instead, the Compensation Committee considers the participating named executive officer’s relative level of responsibility and potential to affect the Company’s overall performance when it awards long-term compensation. The Compensation Committee believes that at the time the performance goals for each LTIP were set, achievement of those levels of performance would require a high level of performance that would be difficult to attain.

SHC LTIP EBITDA is defined substantially the same for LTIP purposes as SHC EBITDA with respect to the 2016 AIP (as defined above). However, the specific financial goal under each plan year is specific to each plan period.

In addition to the 2016 long-term compensation program, for Messrs. Hollar and Skelley, long-term compensation opportunities also consist of awards under the 2015 Long-Term Incentive Program (the “2015 LTIP”), a cash program dependent upon the achievement of Company financial goals during fiscal years 2015 through 2017 that was designed to be performance-based and the 2015 Cash Long-Term Incentive Plan, a cash program that was designed to be time-based (the “2015 Cash LTI”) and, for Mr. Hollar, the 2014 Long-Term Incentive Program (the “2014 LTIP”), a cash program dependent upon the achievement of Company financial goals during fiscal years 2014 through 2016 that was designed to be performance-based, and the 2014 Cash Long-Term Incentive Plan, a cash program that was designed to be time-based (the “2014 Cash LTI”).

The 2016 LTIP, 2016 Cash LTI, 2015 LTIP, 2015 Cash LTI, 2014 LTIP and 2014 Cash LTI are described in further detail below.

2014 Long-Term Incentive Structure: 2014 LTIP and 2014 Cash LTI

For 2014, the LTIP was intended as a performance and time-based incentive program. Mr. Hollar was the only named executive officer who participated in the 2014 LTIP and the 2014 Cash LTI. The 2014 long-term incentive opportunity for Mr. Hollar was equal to 100% of base salary, of which 75% is under the 2014 LTIP and 25% is under the 2014 Cash LTI.

2014 LTIP

Opportunities for participants under the 2014 LTIP are based on either 100% domestic SHC LTIP EBITDA or a combination of 25% domestic SHC LTIP EBITDA and 75% BOP-based measures. The Compensation Committee determined the level of financial performance for each performance measure, the performance measure or measures to apply to each business, and which performance measure or measures applies to each participating senior officer. Threshold, target and maximum goals have been established for all performance measures under the 2014 LTIP. For Mr. Hollar, as of his October 6, 2014 start date, 100% of his 2014 LTIP award was weighted on domestic SHC LTIP EBITDA.

Under the 2014 LTIP, the threshold level of performance for the LTIP EBITDA measure is 70% of the cumulative three-year LTIP EBITDA or BOP target during the performance period. A threshold level of performance will generate a payout at 25% of the 2014 LTIP target opportunity and a target level of performance will generate a payout at 100% of the 2014 LTIP target opportunity. The maximum incentive opportunity under the 2014 LTIP is 200% of the participant’s target award amount.

Threshold performance levels were not achieved under the 2014 LTIP; accordingly, there will be no payout under the plan.

2014 Cash LTI

The second component of the 2014 long-term incentive structure is the 2014 Cash LTI.

 

 

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The 2014 Cash LTI provides the opportunity for participants to receive a long-term incentive payout, provided that the participant is actively employed by the Company on the vesting date, which is the April 1st following the end of the service period. The service period refers to the applicable fiscal years under which the 2014 Cash LTI award was granted. Awards under the 2014 Cash LTI represent the right to receive cash as soon as administratively feasible after the vesting date but in no case later than the date that is the 15th day of the third month following the vesting date. The service period for the 2014 Cash LTI is the beginning of the Company’s 2014 fiscal year through the end of its 2016 fiscal year. In 2014, Mr. Hollar received an award of $116,205 under the 2014 Cash LTI. Payment of his award is contingent upon remaining actively employed by the Company through April 1, 2017.

2015 Long-Term Incentive Structure: 2015 LTIP and 2015 Cash LTI

For 2015, the LTIP was intended as a performance and time-based incentive program. The named executive officers who participate in the 2015 LTIP and the 2015 Cash LTI are Messrs. Hollar and Skelley. The 2015 long-term incentive opportunity for Messrs. Hollar and Skelley is equal to 100% of base salary, of which 75% is under the 2015 LTIP and 25% is under the 2015 Cash LTI.

2015 LTIP

The 2015 LTIP for the participating named executive officers contains two different performance measures: SHC LTIP EBITDA and BOP-based measures calculated for each business unit. Opportunities for participants under the 2015 LTIP are based on either 100% SHC LTIP EBITDA or a combination of 25% SHC LTIP EBITDA and 75% BOP-based measures.

The Compensation Committee determined the level of financial performance for each performance measure, the performance measure or measures to apply to each business, and which performance measure or measures applies to each participating senior officer. Threshold, target and maximum goals have been established for all performance measures under the 2015 LTIP.

For Mr. Hollar, 100% of his 2015 LTIP award was weighted on SHC LTIP EBITDA. For Mr. Skelley, as of his October 12, 2015 start date, his 2015 LTIP award was weighted 25% SHC LTIP EBITDA and 75% Home Services BOP.

2015 Cash LTI

The second component of the 2015 long-term incentive structure is the 2015 Cash LTI.

The 2015 Cash LTI provides the opportunity for participants to receive a long-term incentive payout, provided that the participant is actively employed by the Company on the vesting date, which is the April 1st following the end of the service period. The service period refers to the applicable fiscal years under which the 2015 Cash LTI award was

granted. Awards under the 2015 Cash LTI represent the right to receive cash as soon as administratively feasible after the vesting date but in no case later than the date that is the 15th day of the third month following the vesting date. The service period for the 2015 Cash LTI is the beginning of the Company’s 2015 fiscal year through the end of its 2017 fiscal year. In 2015, Messrs. Hollar and Skelley received awards of $150,000 and $153,960, respectively, under the 2015 Cash LTI. Payment of such amounts is contingent upon their remaining actively employed by the Company through April 1, 2018.

2016 Long-Term Incentive Structure: 2016 LTIP and 2016 Cash LTI

For 2016, the LTIP was intended as a performance and time-based incentive program. The named executive officers who participate in the 2016 LTIP and the 2016 Cash LTI are Messrs. Hollar, Skelley and Zoll. The 2016 long-term incentive opportunity for each of Messrs. Hollar and Skelley is equal to 100% of base salary, of which 75% is under the 2016 LTIP and 25% is under the 2016 Cash LTI. The 2016 long-term incentive opportunity for Mr. Zoll is equal to 103% of base salary, subject to proration based on his start date with the Company, of which 75% is under the 2016 LTIP and 25% is under the 2016 Cash LTI. The 2016 long-term incentive opportunities were determined based on a combination of several factors including internal equity/job level, prior compensation levels and market rates.

2016 LTIP

The 2016 LTIP provides the opportunity for salaried employees who generally hold a position of vice president or higher to receive a long-term incentive award equal to a percentage of his or her base salary or a dollar amount subject to the attainment of performance goals for a three-year period (fiscal years 2016 through 2018). Awards under the 2016 LTIP represent the right to receive cash or, at the discretion of the Compensation Committee, shares of our common stock in lieu of cash, or a combination of cash and shares, upon the achievement of certain performance goals.

In the event of a participant’s death or disability before the payment date for his or her award, a payment will be made with respect to that participant in an amount equal to his or her pro-rated target cash incentive opportunity, but only if (1) the applicable performance measure(s) for the period of the performance period through the month preceding the participant’s termination of employment is equal to or greater than the performance goals for such measure(s), pro-rated through the date of termination, (2) the applicable performance measure(s) is equal to or greater than the performance goals for the applicable performance measure(s) for the performance period and (3) the participant has been employed by us for at least 12 months of the performance period. In the event of voluntary termination or termination with cause (as defined in the 2016 LTIP) before the payment date for his or her award, the participant will forfeit all of his or her LTIP award. Except as noted above, to be eligible to receive payment of an award, a participant must be actively employed as of the payment date following completion of the performance period.

 

 

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The following table summarizes the long-term financial measures that apply to the performance-based portion of the 2016 LTIP for the participating named executive officers:

 

Named Executive Officer   

Target LTIP

Opportunity

 

Edward S. Lampert

     N/A  

Robert A. Schriesheim

     N/A  

Jason M. Hollar

   $ 450,000  

Girish Lakshman

     N/A  

Stephan H. Zoll(a)

   $ 497,896  

Sean Skelley

   $ 600,000  
(a)

Mr. Zoll’s long-term incentive target is 103% of his base salary rate, which is $746,750. This table represents the proration of his long-term incentive target based on his start date in June 2016.

 

The financial performance weighting is based 100% on SHC EBITDA for each participating named executive officer. Under the 2016 LTIP, the threshold level of performance for the LTIP EBITDA measure is 70% of the cumulative three-year LTIP EBITDA during the performance period. A threshold level of performance will generate a payout at 25% of the 2015 LTIP target opportunity and a target level of performance will generate a payout at 100% of the 2016 LTIP target opportunity. The maximum incentive opportunity under the 2016 LTIP is 200% of the participant’s target award amount.

If performance goals are achieved, the Company will pay awards earned under the 2016 LTIP to participants no later than April 15, 2019, provided that the participant is actively employed by the Company on the payment date (unless otherwise prohibited by law).

2016 Cash LTI

The second component of the 2016 long-term incentive structure is the 2016 Cash LTI.

The 2016 Cash LTI provides the opportunity for participants to receive a long-term incentive payout, provided that the participant is actively

employed by the Company on the vesting date, which is the April 1st following the end of the service period. The service period refers to the applicable fiscal years under which the 2016 Cash LTI award was granted. Awards under the 2016 Cash LTI represent the right to receive cash as soon as administratively feasible after the vesting date but in no case later than the date that is the 15th day of the third month following the vesting date. The service period for the 2016 Cash LTI is the beginning of the Company’s 2016 fiscal year through the end of its 2018 fiscal year. In 2016, Messrs. Hollar, Skelley and Zoll received awards of $150,000, $200,000 and $165,965, respectively, under the 2016 Cash LTI. Payment of such amounts is contingent upon their remaining actively employed by the Company through April 1, 2019.

In the event of a participant’s death or disability before the payment date for his or her award, a payment will be made with respect to that participant in an amount equal to his or her pro-rated cash incentive opportunity, but only if the participant has been employed by us for at least 12 months of the service period. In the event of voluntary termination or involuntary termination (for any reason other than death or disability) before the vesting date for his or her award, the participant will forfeit all of his or her Cash LTI award.

 

 

Other Long-Term Compensation Opportunities

 

 

Mr. Lakshman’s offer letter provides for a long-term compensation opportunity of grants of stock units with a value of $1,500,000 per annum on each of the first, second and third anniversaries of his date of hire by the Company, which units represent a right to receive a payment in cash or shares. If paid in shares, the number of shares to be issued to Mr. Lakshman on each grant date will be calculated by dividing $1,500,000 by the value of the Company’s common stock on the grant date. The shares awarded will be fully vested when issued. In

2016, the Company paid Mr. Lakshman the first part in cash. Mr. Lakshman’s offer letter also provides for the payment of a long-term cash award in the amount of $2,416,666, which vests in parts. The first part in the amount of $416,666 vested on the last day of the Company’s 2015 fiscal year, the second part of $1,000,000 vested on the last day of the Company’s 2016 fiscal year, and the last part in the amount of $1,000,000 will vest on the last day of the Company’s 2017 fiscal year, provided he is actively employed on the vesting date.

 

 

Other Compensation Elements

 

 

Discretionary Bonuses

We have paid, and may in the future pay, sign-on, guarantees and other bonuses where determined necessary or appropriate to attract top executive talent from other companies and motivate or retain key executives or both. Executives we recruit often have unrealized value in the form of unvested equity and other forgone compensation opportunities. Sign-on bonuses are an effective means of offsetting compensation opportunities executives may forfeit when they leave a former company to join Sears Holdings.

Mr. Hollar’s offer letter provides for a one-time special cash retention payment of $100,000, within thirty days following December 31, 2017, provided Mr. Hollar remains employed through the date payment is

made. Additionally, Mr. Hollar’s offer letter provides for an additional long-term cash award of $1,000,000, payable on a graded basis, with one-third being payable as of each of the first three anniversaries of his date of hire by the Company, provided he is actively employed on the vesting date (unless involuntarily terminated for cause or for good reason).

Mr. Zoll’s offer letter provides for a long-term cash award in the amount of $1,900,000, payable in four installments. Mr. Zoll received $500,000 on his start date and will receive $900,000 on the first anniversary of his start date and $250,000 on his second and third anniversaries of his start date, provided he is actively employed on the applicable vesting date (unless involuntarily terminated for cause or for good reason).

 

 

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Messrs. Hollar and Zoll received these long-term cash awards to induce them to join the Company, to compensate them for other foregone compensation opportunities and in recognition of their expected future contributions to the Company. For a discussion of bonuses granted prior to fiscal year 2016 that had scheduled payouts in fiscal year 2016, see “Other Long-Term Compensation Opportunities” on page 23.

Perquisites and Other Benefits

The Company may provide its named executive officers with perquisites and other personal benefits that the Compensation Committee deems reasonable and consistent with our overall compensation program. None of its named executive officers received any perquisites or other personal benefits during fiscal year 2016.

Retirement Plans

We provide 401(k) savings plans to allow participants to contribute towards retirement on a pre-tax (including catch-up contributions) and after-tax basis. The U.S. 401(k) savings plan allows pre-tax contributions of up to 50% of eligible compensation (or the limit determined by the Internal Revenue Service) and after-tax contributions of up to 25% of eligible compensation, provided however that in the aggregate these contributions do not exceed 50% of eligible compensation. Notwithstanding the foregoing, effective January 31, 2009, additional contribution restrictions were imposed on plan participants who were highly compensated employees as defined by the Internal Revenue Code. Each named executive officer was subject to these additional contribution restrictions. In addition, the Company has previously suspended its matching contributions to the 401(k) savings plans.

Severance Benefits

Each of our named executive officers other than Mr. Lampert has entered into an executive severance agreement (an “ESA”) with the Company. The ESAs contain non-disclosure, non-solicitation and non-competition restrictions. Additionally, the payments under the ESA provide individuals a window of time to locate a new position in the marketplace. While the following description of the terms and conditions applies generally to our ESAs with our named executive officers, ESAs with certain of our executive officers may contain different or additional terms and conditions that served as additional inducements for those named executive officers to join the Company and, if applicable, are more fully described under “Payments Pursuant to ESAs” starting on page 28. Under the ESA, payments are provided for involuntary termination by the Company without cause (as defined in the ESA) or termination by the executive officer for “good reason” (as defined in the ESA). Named executive officers, except Mr. Lampert and, if applicable, except as described under the heading “Payments Pursuant to ESAs,” will receive payments equal to one year of annual base salary, subject to mitigation for salary or wages earned from another employer, including self-employment depending on the form of agreement.

If a named executive officer becomes entitled to benefits under the ESA, the named executive officer will be entitled to other Company benefits such as continued participation in Sears Holdings medical and dental plans during the salary continuation period. Except as described below under the heading “Payments Pursuant to ESAs—Other Payments and Benefits,” the forms of ESAs do not have specific change-in-control or similar provisions that would give rise to or impact the payments and benefits to the executive officers.

 

 

Fiscal Year 2016 CEO Compensation

 

 

On January 28, 2016, the Company and Mr. Lampert agreed to a three year extension of Mr. Lampert’s offer letter dated March 18, 2013. Pursuant to Mr. Lampert’s compensation arrangement, Mr. Lampert is paid an annual base salary of $1, effective as of February 1, 2013, the date on which Mr. Lampert began to serve as our Chief Executive Officer. In addition, during each of the first six years of Mr. Lampert’s service as our Chief Executive Officer, Mr. Lampert (1) participated in the Company’s Annual Incentive Plan, with a target incentive opportunity of $2,000,000 (based in fiscal year 2016 solely on the achievement of the SHC EBITDA goal), payout under which (if any) may be paid, at Mr. Lampert’s election, in cash or in common stock of the Company, and (2) received stock with a value of $4,500,000 per annum, payable in monthly installments subject to his continued service as Chief Executive Officer. For fiscal 2016, the number of shares issued to Mr. Lampert pursuant to his annual equity award through January 28, 2017 totaled 265,487. This total was calculated by dividing $4,500,000 by the value of the Company’s common stock on

January 29, 2016 of $16.95 per share, payable in monthly installments and subject to his continued service as Chief Executive Officer. The number of shares to be issued to Mr. Lampert from January 29, 2017 through February 3, 2018 was calculated by dividing $4,500,000 by the value of the Company’s common stock on January 27, 2017, payable in monthly installments and subject to his continued service as Chief Executive Officer. To the extent there is not a sufficient number of shares available under the Company’s equity plans to make any award contemplated under Mr. Lampert’s offer letter, Mr. Lampert will be entitled to receive compensation of substantially equivalent economic value in such form as the Company and Mr. Lampert agree upon. Mr. Lampert’s primary place of employment is located in the Miami, Florida metropolitan area. He is not eligible to participate in the Company’s long-term incentive programs. Mr. Lampert is not entitled to severance benefits if his employment with the Company is terminated for any reason, and has not entered into an ESA with the Company.

 

 

Certain Tax Consequences

 

 

In setting an executive officer’s compensation package, the Compensation Committee considers the requirements of Internal Revenue Code Section 162(m), which provides that compensation in excess of $1 million paid to certain executive officers is not deductible unless it is performance-based and paid under a program that meets certain other legal requirements. Neither base salary nor time-based cash or equity awards that vest based solely on continued service

qualify as performance-based compensation under Section 162(m). Although a significant portion of each executive officer’s compensation is intended to satisfy the requirements for deductibility under Section 162(m), the Compensation Committee retains the ability to evaluate the performance of our executives and to pay appropriate compensation, even if it may result in the non-deductibility of certain compensation under federal tax law.

 

 

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EXECUTIVE COMPENSATION

 

Compensation Committee Role in Executive Compensation Decisions

 

The Compensation Committee is appointed by the Board to fulfill the Board’s responsibilities relating to compensation of our senior officers. The Compensation Committee has overall responsibility for approving and evaluating all compensation plans, our policies and programs as they affect the Chief Executive Officer and the senior officers. The Compensation Committee is composed of independent members of the Board and consists of no fewer than two members.

The Compensation Committee has the sole authority to retain or terminate any compensation consultant to be used to assist it in the evaluation of Chief Executive Officer or senior officer compensation and has the sole authority to approve the consultant’s fees and the terms and conditions of the consultant’s retention. The Compensation Committee also has authority to obtain advice and assistance from internal or external legal, accounting or other advisors. No compensation consultant was used by the Compensation Committee in 2016.

The Compensation Committee duties include:

 

 

evaluating the Chief Executive Officer’s performance in light of corporate goals and objectives;

 

 

determining the compensation of named executive officers, including base salaries and annual incentive opportunities;

 

 

determining cash-based and equity-based awards and opportunities for our named executive officers;

 

 

reviewing and approving employment agreements, severance arrangements, change-in-control agreements and change-in-control provisions affecting any elements of compensation and benefits affecting the Chief Executive Officer and other senior executives;

 

 

approving incentive compensation plans and programs;

 

 

serving as the administration committee of the Company’s equity plans; and

 

 

approving any special or supplemental compensation and benefits for executive officers, including supplemental retirement benefits and the perquisites provided to them during and after employment.

The Compensation Committee also receives periodic reports on our compensation programs as they affect all associates.

 

 

Compensation Committee Interlocks and Insider Participation

 

During fiscal year 2016, 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: Paul

G. DePodesta, Ann N. Reese, and Thomas J. Tisch. There were no interlocks during fiscal year 2016 with other companies within the meaning of the SEC’s proxy rules.

 

 

Compensation Committee Report

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management of the Company. Based on the review and discussions noted above, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January 28, 2017 and in this proxy statement.

Compensation Committee

Thomas J. Tisch, Chair

Paul G. DePodesta

Ann N. Reese

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table

The following table sets forth information concerning the total compensation paid to each person who served as our Chief Executive Officer or our Chief Financial Officer during fiscal year 2016 and to our three other most highly compensated executive officers for fiscal year 2016 who were executive officers at the end of the fiscal year (collectively, the “named executive officers”).

 

Name and Principal Position    Year      Salary(a)      Bonus(b)     

Stock

Awards(c)

   

All Other

Compensation(d)

     Total  

Edward S. Lampert

     2016      $ 1      $      $ 3,481,636            $ 3,481,637  

Chief Executive Officer

     2015        1               4,300,584            $ 4,300,585  
       2014        1               5,702,363              5,702,364  

Robert A. Schriesheim

     2016        581,818                     518,686        1,100,504  

Former Executive Vice President

     2015        800,000                     172,137        972,137  

and Chief Financial Officer

     2014        800,000                     533,516        1,333,516  

Jason M. Hollar

     2016        624,306        633,333                     1,257,639  

Chief Financial Officer

                                                    

Girish Lakshman

     2016        794,444        2,200,000                     2,994,444  

President, Fulfillment—Supply Chain

     2015        306,061        1,374,946        4,500,000 (e)             6,181,007  

and Sourcing

                                                    

Stephan H. Zoll

     2016        478,299        1,225,000              120,484        1,823,783  

President, Online

                                                    

Sean Skelley

     2016        794,444        800,000              82,284        1,676,728  

President, Home Services

                                                    
(a)

The amount shown for Mr. Schriesheim reflects the salary received through his last day of employment with the Company on October 21, 2016. The amount shown for Mr. Zoll reflects the number of days from his start date on June 1, 2016 through the end of the fiscal year. Mr. Zoll’s 2016 base salary was $725,000. In connection with his promotion to Chief Financial Officer, Mr. Hollar’s base salary was increased to $700,000, effective October 14, 2016.

(b)

The amount for Mr. Hollar reflects a stay bonus of $333,333 and a minimum annual bonus of $300,000, each pursuant to the terms of his offer letter. The 2016 amount for Mr. Lakshman reflects a stay bonus of $1,000,000 and a minimum annual bonus of $1,200,000, each pursuant to the terms of his offer letter. The amount for Mr. Zoll reflects a stay bonus of $500,000 and a minimum annual bonus of $725,000, each pursuant to the terms of his offer letter. The amount for Mr. Skelley reflects a minimum annual bonus of $800,000 pursuant to the terms of his offer letter.

(c)

The amount in this column represents the full grant date fair value of stock awards granted to Mr. Lampert under the Company’s 2013 Stock Plan. The full grant date fair value is the amount the Company expensed in its financial statements. Each monthly installment of shares issued to Mr. Lampert was fully vested on the grant date. See “Fiscal Year 2016 CEO Compensation” in the Compensation Discussion and Analysis section for further discussion of Mr. Lampert’s compensation.

(d)

The amount in this column represents the payments and benefit amounts provided to Mr. Schriesheim in accordance with his ESA from October 22, 2016 through the end of the Company’s fiscal year, commuter and relocation payments to Mr. Zoll (of which $36,725 was for relocation expenses, $30,908 was for tax gross ups and $52,851 was for commuter cash) and commuter expenses for Mr. Skelley (of which $59,546 was for commuter cash, $16,843 was for imputed income and $5,895 was for imputed income tax gross ups).

(e)

For 2015, the “Stock Awards” and “Total” amounts for Mr. Lakshman have been adjusted compared to prior disclosure to reflect the grant date fair value of the restricted stock award pursuant to Mr. Lakshman’s offer letter, which was inadvertently omitted from the Summary Compensation Table in last year’s proxy statement. As discussed in the Compensation Discussion and Analysis section of this proxy statement and last year’s proxy statement, Mr. Lakshman’s offer letter provides for a long-term compensation opportunity of grants of restricted stock with a value of $1,500,000 per annum on each of the first, second and third anniversaries of his date of hire by the Company. For further discussion, see “Other Long-Term Compensation Opportunities” in the Compensation Discussion and Analysis section. The aggregate grant date fair value was computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). See Note 9 to the Company’s audited financial statements included in our Annual Report for fiscal year ended January 28, 2017 for a discussion of the relevant assumptions used in calculating the amount. The first part of the award was settled in cash for $1,500,000 in 2016.

 

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Grants of Plan-Based Awards

The compensation plans under which the grants in the following table were made are generally described under the heading “Compensation Discussion and Analysis” beginning on page 18 of this proxy statement.

 

Name    Plan(a)      Grant Date for
Equity-Based
Awards(b)
     Estimated Future
Payouts Under
Non-Equity Incentive Plan
Awards(c)
    

All

Other

Stock

Awards:

Number

of Shares

of Stock

    

Grant Date

Fair Value

of Stock

and Option

Awards(d)

 
         Threshold      Target      Maximum        

Edward S. Lampert

     2016 AIP             $ 1      $ 2,000,000      $ 4,000,000             $  
     2013 Stock Plan        February 29, 2016                             22,123      $ 386,489  
     2013 Stock Plan        March 31, 2016                             22,124      $ 338,718  
     2013 Stock Plan        April 29, 2016                             22,124      $ 362,391  
     2013 Stock Plan        May 31, 2016                             22,124      $ 293,364  
     2013 Stock Plan        June 30, 2016                             22,124      $ 301,108  
     2013 Stock Plan        July 29, 2016                             22,124      $ 340,931  
     2013 Stock Plan        August 31, 2016                             22,124      $ 304,647  
     2013 Stock Plan        September 30, 2016                             22,124      $ 253,541  
     2013 Stock Plan        October 31, 2016                             22,124      $ 245,798  
     2013 Stock Plan        November 30, 2016                             22,124      $ 284,957  
     2013 Stock Plan        December 30, 2016                             22,124      $ 205,532  
       2013 Stock Plan        January 27, 2017                             22,124      $ 164,160  

Robert A. Schriesheim

     2016 AIP               1        1,200,000        2,400,000                

Jason M. Hollar

     2016 AIP               1        629,400        1,258,800                
     2016 Cash LTIP               150,000        150,000        150,000                
       2016 LTIP               112,500        450,000        900,000                    

Girish Lakshman

     2016 AIP               1        1,200,000        2,400,000                
                                                            

Stephan H. Zoll

     2016 AIP               1        481,980        963,960                
     2016 Cash LTIP               165,965        165,965        165,965                
       2016 LTIP               150,000        600,000        1,200,000                

Sean Skelley

     2016 AIP               1        800,000        1,600,000                
     2016 Cash LTIP               200,000        200,000        200,000                
       2016 LTIP               150,000        600,000        1,200,000                
(a)

Messrs. Lampert, Schriesheim and Lakshman did not participate in the Long Term Incentive Program.

(b)

This column reflects the grant date of the awards pursuant to Mr. Lampert’s offer letters. See “Fiscal Year 2016 CEO Compensation” in the Compensation Discussion and Analysis section for further discussion of Mr. Lampert’s compensation.

(c)

The amounts in these columns include the threshold, target and maximum amounts for each named executive officer under the 2016 AIP, 2016 Cash LTI and 2016 LTIP. The threshold level of performance under the 2016 AIP earns 25% of the target opportunities. Amounts under the 2016 Cash LTI are time-based and are not dependent on performance. Mr. Zoll’s target is prorated from his date of hire through the end of the 2016 fiscal year, in accordance with the plan administration guidelines. Other than Mr. Lampert and Schriesheim, all NEOs are guaranteed minimum annual bonuses. See footnote (b) to the Summary Compensation Table for information regarding the NEO minimum annual bonuses.

(d)

This column reflects the full grant date fair value of stock granted. The full grant date fair value is the amount that the Company would expense in its financial statements over the award’s applicable vesting period. See footnote (c) to the Summary Compensation Table for information regarding the fair value of each of Mr. Lampert’s stock awards.

 

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EXECUTIVE COMPENSATION

 

Outstanding Equity Awards at 2016 Fiscal Year End

None of the Company’s named executive officers held unvested stock awards or stock options on January 28, 2017.

Option Exercises and Stock Vested

The following table shows the number of shares acquired upon vesting of restricted stock awards and the value realized, before payment of any applicable withholding tax. None of our named executive officers owned or exercised any stock options during fiscal year 2016.

 

     Stock Awards  
Name    Number of Shares
Acquired on Vesting
     Value Realized on
Vesting(a)
 

Edward S. Lampert

     265,487      $ 3,481,636  

Robert A. Schriesheim

             

Jason M. Hollar

             

Girish Lakshman

             

Sean Skelley

             

Stephan H. Zoll

             
(a)

See footnote (c) to the Summary Compensation Table for information regarding the vesting of Mr. Lampert’s fiscal year 2016 stock awards.

Potential Payments Upon Termination of Employment

 

The amount of compensation paid to each of the named executive officers of the Company in the event of termination of such executive’s employment is discussed below, and potential payouts are detailed in the tables beginning on page 30. The amounts shown assume that such termination was effective as of January 28, 2017, the last business day of fiscal year 2016. Therefore, the tables include amounts earned

through such time and are estimates of the amounts which would have been paid to each named executive officer upon his or her termination, subject to mitigation (as applicable). The actual amounts that would have been paid to the executives can be determined only at the time of such executive’s separation from the Company.

 

 

Payments Pursuant to ESAs

 

 

As described under the heading “Compensation Discussion and Analysis” beginning on page 18, the Company provides payments and benefits to our named executive officers pursuant to ESAs that the Company entered into with each of such executive officers, other than Mr. Lampert, who is not entitled to such payments and benefits and with whom there is no ESA. The amounts shown in the table for termination for “good reason” or termination without “cause” are based on the following agreement provisions, for those named executive officers with ESAs, other than Mr. Schriesheim who separated from the Company in October 2016, as further discussed below.

 

 

Good Reason:

 

   

For the named executive officers with ESAs, a termination by the executive officer is for good reason if it results from (1) a reduction of more than 10% in the sum of the executive officer’s annual salary and target bonus from those in effect as of the date of the ESA; (2) an executive officer’s mandatory relocation to an office more than 50 miles from the primary location at which the executive officer is required to perform his or her duties; or (3) any action or inaction that constitutes a material breach under the ESA, including the failure of a successor company to assume or fulfill the obligations under the ESA.

 

   

For Mr. Hollar, good reason under his ESA also includes a material diminution in his authority, duties or responsibilities.

 

Cause—A termination by an executive officer is without cause if the executive officer is involuntarily terminated because of job elimination (other than poor performance) or without “cause.”

 

   

For the named executive officers with ESAs, “cause” generally is defined as (1) a material breach by the executive officer, other than due to incapacity due to a disability, of the executive officer’s duties and responsibilities which breach is demonstrably willful and deliberate on the executive officer’s part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and such breach is not remedied by the executive officer in a reasonable period of time after receipt of written notice from Sears specifying such breach; (2) the commission by the executive officer of a felony; or (3) dishonesty and/or willful misconduct in connection with the executive officer’s employment.

Payments and Benefits Upon Termination for “Good Reason” or Without “Cause”

 

 

For the named executive officers with ESAs, base salary at the rate in effect immediately prior to the date of termination, payable in the form of salary continuation for 12 months, subject to mitigation.

 

 

For all named executive officers with ESAs, continuation of active medical and dental coverage the named executive officer was eligible

 

 

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EXECUTIVE COMPENSATION

 

   

to participate in prior to the end of employment during the salary continuation period.

 

 

For Mr. Hollar, any unpaid stay bonus.

 

 

For Mr. Zoll, annual target incentive opportunity under the AIP for the fiscal year in which his date of termination occurs and any unpaid stay bonus.

Other Payments and Benefits

The forms of ESAs do not provide for payments to the participating named executive officers upon termination of employment due to death, disability or retirement. If a termination had been effective as of January 28, 2017 due to death or disability, the participating named executive officers would have been eligible to receive payments under the Company’s annual and long-term incentive programs, as provided below.

An eligible named executive officer will not be entitled to payment under the ESAs in the event of termination for “cause” or voluntary termination.

Under the ESAs, the named executive officers agree to non-disclosure of confidential information, non-solicitation and non-compete covenants, as well as a release of liability for certain claims against the Company.

Separation of Mr. Schriesheim

Effective October 21, 2016, Mr. Schriesheim ceased serving as our principal financial officer. In accordance with the terms of his pre-existing ESA, Mr. Schriesheim will receive the sum of his annual base salary of $800,000 and a bonus equivalent to his 2016 target bonus of $1,200,000, payable in the form of salary continuation for 12 months, and continued enrollment in the Company’s benefit plans for 12 months.

 

 

Payments Pursuant to Incentive Compensation Programs

 

 

2016 Annual Incentive Plan

If a named executive officer (other than Mr. Zoll) with an ESA voluntarily terminates employment (for any reason other than disability) or is involuntarily terminated for any reason (other than death), he or she will forfeit his or her 2016 AIP award, except as prohibited by law. Under the terms of Mr. Zoll’s ESA, if Mr. Zoll is involuntarily terminated without “cause” or voluntarily terminates his employment for “good reason,” Mr. Zoll is entitled to his annual target incentive opportunity under the AIP for the fiscal year in which his date of termination occurs.

If a named executive officer with an ESA has a termination of employment with the Company because of death or disability, the named executive officer will be entitled to a pro-rated payment through the termination date if the financial criteria under the 2016 AIP are satisfied. The pro-ration would be based upon a fraction, the numerator of which is the number of full days worked on active payroll during fiscal year 2016 and the denominator of which is the number of full days in fiscal year 2016. The named executive officers (other than Messrs. Skelley and Zoll) with ESAs would not have been entitled to a distribution under the 2016 AIP in the event of death or disability because the financial goals pertaining to their AIP assignments were not achieved. Messrs. Skelley and Zoll would have received $317,074 and $261,481, respectively, under the 2016 AIP in the event of death or disability because their financial goals pertaining to their AIP assignments were achieved in part.

2014 Long-Term Incentive Program; 2015 Long-Term Incentive Program; 2016 Long-Term Incentive Program

Any awards under the 2014 LTIP, 2015 LTIP and 2016 LTIP are subject to forfeiture by a named executive officer with an ESA in the event of voluntary termination of employment (for any reason other than disability) or involuntary termination for any reason (other than death), except as prohibited by law. If such a named executive officer’s employment is terminated because of death or disability, the named executive officer will be entitled to a pro-rated payment through the

termination date if the financial goals under the 2014 LTIP, 2015 LTIP or 2016 LTIP, as of the termination date, equal or exceed the applicable performance goals and the named executive officer was a participant in the applicable LTIP for at least 12 months of the performance period. Any pro-ration would be based on a fraction, the numerator of which is the number of full months during the performance period in which the executive was a participant, and the denominator of which is the number of full months in the applicable performance period.

As of January 28, 2017, the financial goals under 2014 LTIP, 2015 LTIP and 2016 LTIP were not equal to or in excess of the applicable performance goals, and therefore, no named executive officer participating in the 2014 LTIP, 2015 LTIP or 2016 LTIP would have been entitled to any payments under these plans in the event of death or disability on January 28, 2017.

2014 Cash Long-Term Incentive Program; 2015 Cash Long-Term Incentive Program; 2016 Cash Long-Term Incentive Program

If a named executive officer with an ESA voluntarily terminates employment (for any reason other than disability) or is involuntarily terminated for any reason (other than death) prior to the applicable vesting date, he or she will forfeit his or her 2014 Cash LTI award, 2015 Cash LTI award and 2016 Cash LTI award, if any, in each case except as prohibited by law. If such named executive officer’s employment is terminated because of death or disability, the named executive officer will be entitled to a pro-rated payment through the termination date if the named executive officer was employed by one or more of the Company or one of its subsidiaries for at least 12 months of the three year service period. As of January 28, 2017, Mr. Hollar would have been employed for at least 12 months of the 2014, 2015 and 2016 Cash LTI Plans respective service periods, Mr. Skelley would have been employed for at least 12 months of the 2015 and 2016 Cash LTI Plans respective service periods, and Mr. Zoll would have been employed for at least 12 months of the 2016 Cash LTI Plan respective service period, and therefore would be entitled to payments under this program in the event of death or disability.

 

 

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EXECUTIVE COMPENSATION

 

Potential Payments Upon Termination of Employment

 

The table below summarizes the potential payouts to our named executive officers, other than for Mr. Schriesheim, for the termination events described above assuming such termination occurred on January 28, 2017. Mr. Schriesheim separated from the Company in October 2016 and is receiving payments and benefits pursuant to his ESA, as further discussed above.

 

Edward S. Lampert(a)   Salary
Continuation
    Continuation
of Medical/
Welfare
Benefits(b)
    AIP
Payment(c)
    Stay
Bonus
    LTIP
Payment
    Cash LTI
Payment
    Accelerated
Vesting of
Restricted
Stock
    Total  

Termination for Good Reason

  $     $     $     $     $     $     $     $  

Termination without Cause

                                               

Termination with Cause

                                               

Voluntary Termination

                                               

Termination due to Disability

                                               

Termination due to Retirement

                                               

Termination due to Death

                                    —                     —        
Jason M. Hollar   Salary
Continuation
    Continuation
of Medical/
Welfare
Benefits(b)
    AIP
Payment(c)
    Stay
Bonus(d)
    LTIP
Payment
    Cash LTI
Payment
    Accelerated
Vesting of
Restricted
Stock
    Total  

Termination for Good Reason

  $ 700,000     $ 7,295     $       $333,333     $     $     $     $ 1,040,628  

Termination without Cause

    700,000       7,295             333,333                         1,040,628  

Termination with Cause

                                               

Voluntary Termination

                                               

Termination due to Disability

                                  251,532             251,532  

Termination due to Retirement

                                               

Termination due to Death

                                  251,532             251,532  
Girish Lakshman   Salary
Continuation
    Continuation
of Medical/
Welfare
Benefits(b)
    AIP
Payment(c)
    Stay
Bonus
    LTIP
Payment
    Cash LTI
Payment
    Accelerated
Vesting of
Restricted
Stock
    Total  

Termination for Good Reason

  $ 800,000     $ 5,109     $     $     $     $     $       $805,109  

Termination without Cause

    800,000       5,109                                     805,109  

Termination with Cause

                                               

Voluntary Termination

                                               

Termination due to Disability

                                               

Termination due to Retirement

                                               

Termination due to Death

                                               
Stephan H. Zoll   Salary
Continuation
    Continuation
of Medical/
Welfare
Benefits(b)
    AIP
Payment(c)
    Stay
Bonus(d)
    LTIP
Payment
    Cash LTI
Payment
    Accelerated
Vesting of
Restricted
Stock
    Total  

Termination for Good Reason

  $ 725,000     $ 7,002     $ 725,000     $ 1,400,000     $     $     $     $ 2,857,002  

Termination without Cause

    725,000       7,002     $ 725,000       1,400,000                         2,857,002  

Termination with Cause

                                               

Voluntary Termination

                                               

Termination due to Disability

                261,481                   52,213             313,694  

Termination due to Retirement

                                               

Termination due to Death

                261,481                   52,213             313,694  

 

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EXECUTIVE COMPENSATION

 

Sean Skelley   Salary
Continuation
    Continuation
of Medical/
Welfare
Benefits(b)
    AIP
Payment(c)
    Stay
Bonus
    LTIP
Payment
    Cash LTI
Payment
    Accelerated
Vesting of
Restricted
Stock
    Total  

Termination for Good Reason

  $ 800,000     $ 7,295     $     $     $     $     $     —     $ 807,295  

Termination without Cause

    800,000       7,295                                     807,295  

Termination with Cause

                                               

Voluntary Termination

                                               

Termination due to Disability

                317,074                   159,884             476,958  

Termination due to Retirement

                                               

Termination due to Death

                317,074           —           —       159,884             476,958  
(a)

Mr. Lampert is not entitled to severance benefits if his employment with the Company is terminated for any reason, and has not entered into an ESA with the Company. Accordingly, he would not have received any benefits if his employment had terminated on January 28, 2017.

(b)

For Messrs. Hollar, Lakshman, Zoll and Skelley, the amounts represent the continuation of medical benefits for one year.

(c)

For Mr. Zoll, this amount represents the amount of his 2016 target AIP bonus pursuant to the terms of his ESA. Messrs. Hollar, Lakshman and Skelley are not entitled to receive target bonuses under the terms of their ESAs. Additionally, Messrs. Skelley and Zoll would have received $317,074 and $261,481, respectively, under the 2016 AIP in the event of death or disability because their financial goals pertaining to their AIP assignments were achieved in part. Furthermore, Messrs. Hollar, Skelley and Zoll would have been entitled to pro-rated payments under the Cash LTI programs in the event of death or disability. For further discussion of payments upon death or disability, see “Payments Pursuant to Incentive Compensation Programs,” above.

(d)

Assuming a termination on January 28, 2017, Messrs. Hollar and Zoll would have also been entitled to an amount equal to the unpaid portion of their stay bonus under their offer letters, which was $333,333 and $1,400,000, respectively.

 

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COMPENSATION OF DIRECTORS

The following table shows information concerning the compensation paid in fiscal year 2015 to non-employee directors who served on the Board during fiscal year 2016.

 

Name    Fees Earned or
Paid in Cash
       Total  

C. Alvarez

   $ 60,000        $ 60,000  

B. Berkowitz(a)

               

P. DePodesta

     60,000          60,000  

A. Haas(b)

     48,197          48,197  

K. Kamlani

     60,000          60,000  

W. Kunkler

     60,000          60,000  

S. Mnuchin(c)

     55,246          55,246  

A. Reese

     70,000          70,000  

T. Tisch

     60,000          60,000  
(a)

Mr. Berkowitz has requested to forego any compensation for his service as a non-employee director of the Company.

(b)

Ms. Haas resigned as a director of the Company, effective December 13, 2016.

(c)

Mr. Mnuchin resigned as a director of the Company, effective December 2, 2016.

Sears Holdings provides its non-employee directors an annual cash retainer in the amount of $60,000 for serving as a director of the Company, except that Ms. Reese receives an additional $10,000 retainer for service as chair of the Audit Committee.

 

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ITEM 2.   ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

In accordance with Section 14A of the Exchange Act we are providing our stockholders with an annual opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement.

At the Company’s annual meeting of stockholders held in May 2016, over 98% of the votes cast on the advisory vote to approve the compensation of our named executive officers were voted in favor of the proposal. The Compensation Committee believes this affirms our stockholders’ support for the Company’s approach to executive compensation.

As described in detail under the heading “Compensation Discussion and Analysis,” we seek, to the extent practicable, to link the compensation of our named executive officers with the Company’s performance. Our compensation programs are designed to reward our named executive officers for the achievement of short-term and long-term financial goals, while minimizing excessive risk taking in the short term. We believe that our compensation program is strongly aligned with the long-term interests of our stockholders. We urge you to read the Compensation Discussion and Analysis section of this proxy statement for additional details on our executive compensation, including our compensation philosophy and objectives and the 2016 compensation of our named executive officers.

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company or our Board or the Compensation Committee of the Board. However, the Board and Compensation Committee value the opinions expressed by our stockholders in their vote on this proposal, and will continue to consider the outcome of the vote when making future compensation decisions and policies regarding our named executive officers.

Accordingly, we ask our stockholders to vote on the following resolution at the Annual Meeting:

RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in this proxy statement.”

 

 

The Board recommends that you vote “FOR” the approval of the compensation of our named executive officers as described in this proxy statement.

 

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ITEM 3.   ADVISORY VOTE ON THE FREQUENCY OF THE ADVISORY VOTE OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

 

Pursuant to Section 14A of the Exchange Act (“Section 14A”), the Corporation is conducting an advisory (non-binding) vote on the frequency with which the advisory vote on the compensation of our named executive officers should be held. Since the initial advisory vote on the compensation of our named executive officers pursuant to Section 14A, we have held an annual Section 14A advisory vote on the compensation of our named executive officers. We are asking stockholders whether future advisory votes on the compensation of our named executive officers should be held every one, two or three years.

By voting with respect to this Proposal 3, stockholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation once every one, two, or three years. Stockholders also may, if they wish, abstain from casting a vote on this proposal.

Our Board of Directors has determined that an annual advisory vote on executive compensation will allow our stockholders to provide timely, direct input on the Company’s executive compensation philosophy, policies and practices as disclosed in the proxy statement each year.

The Board believes that an annual vote is therefore consistent with the Company’s efforts to engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance matters. The Company recognizes that the stockholders may have different views as to the best approach for the Company, and therefore we look forward to hearing from our stockholders as to their preferences on the frequency of an advisory vote on executive compensation.

Although this vote is advisory and not binding on the Company or our Board of Directors in any way, the Board and the Compensation Committee will take into account the outcome of the vote when considering the frequency of future advisory votes on executive compensation.

The proxy card provides stockholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, stockholders will not be voting to approve or disapprove the recommendation of the Board of Directors.

 

 

The Board recommends that you vote to hold an advisory vote on executive compensation every “1 YEAR”.

 

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ITEM 4.   RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Item 4 is the ratification of the Audit Committee’s appointment of Deloitte & Touche LLP (“Deloitte”) as the independent registered public accounting firm to audit the financial statements of the Company for

fiscal year 2017. Representatives of Deloitte will be present at the Annual Meeting. They will be available to respond to your questions and may make a statement if they so desire.

 

 

The Board and the Audit Committee recommend a vote “FOR” the proposal to ratify the appointment of Deloitte & Touche LLP as the Independent Registered Public Accounting Firm for Fiscal Year 2017.

Independent Registered Public Accounting Firm Fees

 

 

The following table shows the fees paid or accrued by the Company and its subsidiaries for the audit and other services provided by Deloitte, the member firms of Deloitte Touche Tohmatsu and their respective affiliates, for each of the past two fiscal years:

 

      Fiscal Year 2016      Fiscal Year 2015  

Audit Fees(1)

   $ 6,631,000      $ 6,223,000  

Audit-Related Fees(2)

     6,296,000        2,781,000  

Tax Fees(3)

     921,000        871,000  

All Other Fees(4)

     170,000        0  
  

 

 

    

 

 

 

Total

   $ 14,018,000      $ 9,875,000  
(1)

Audit Fees represent fees for professional services provided in connection with the audit of the Company’s consolidated annual financial statements and internal control over financial reporting and review of the quarterly financial statements, including certain accounting consultations in connection with the audit, consents and other SEC matters as well as audit services in connection with statutory or regulatory filings.

(2)

Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” In 2016 and 2015, this category consisted primarily of services related to audits and related accounting consultations in connection with divestitures, service auditors’ examination procedures, and employee benefit plan audits.

(3)

Tax Fees consist of fees billed for professional services rendered for tax compliance and tax planning and advice. Fees for tax compliance services totaled $586,000 and $261,000 in 2016 and 2015, respectively. Tax compliance services included federal, state, local and international income tax return assistance, sales and use tax return assistance and assistance with tax audits. Fees for tax planning and advisory services totaled $335,000 and $611,000 in 2016 and 2015, respectively.

(4)

All Other Fees consist of fees for permitted compliance advisory services.

The Audit Committee must pre-approve all services of our independent registered public accounting firm as required by its charter and the rules of the SEC. Each fiscal year, the Audit Committee approves an annual estimate of fees for services, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent registered public accounting firm’s independence from management. In addition, the Audit Committee will evaluate known potential services of the independent registered public accounting firm, including the scope of the proposed work to be performed and the proposed fees, and approve or reject each service. Management may present additional services for approval at subsequent committee meetings. The Audit Committee has delegated to the Audit Committee Chair the authority to evaluate and approve services on behalf of the Audit Committee in the event a need arises for pre-approval between Committee meetings and in the event the services were within the annual estimate but not specifically approved. If the Chair so approves any such services, she will report that approval to the full Committee at the next Committee meeting.

All of the audit, audit-related and tax services provided by Deloitte, the member firms of Deloitte Touche Tohmatsu and their respective affiliates, were pre-approved in accordance with the Audit Committee’s policies and procedures.

 

 

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ITEM 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Report of the Audit Committee

 

 

The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the Company’s system of internal controls, the presentation and disclosure in the Company’s financial statements, which will be provided to our stockholders and others, and the overall audit process. All members of the Audit Committee meet the criteria for independence applicable to audit committee members under the NASDAQ listing rules. The Audit Committee Charter complies with the NASDAQ listing rules.

Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company’s independent registered public accounting firm is responsible for auditing these financial statements and expressing an opinion as to their conformity to GAAP. The Audit Committee’s responsibility is to monitor and review these processes, acting in an oversight capacity, and the Audit Committee does not certify the financial statements or guarantee the independent registered public accounting firm’s report. The Audit Committee relies, without independent verification, on the information provided to it, including representations made by management and the independent registered public accounting firm, including its audit report.

The Audit Committee discussed with Deloitte & Touche LLP, the Company’s independent registered public accounting firm, the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board, including Auditing Standard No. 16, Communications with Audit Committees. The Audit Committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte’s communications with the Audit Committee concerning independence, and has discussed with Deloitte its independence. The Audit Committee reviewed and discussed the audited financial statements of Sears Holdings Corporation for the fiscal year ended January 28, 2017 with management and Deloitte. Based on the review and discussions noted above, the Audit Committee recommended to the Board that the audited financial statements of Sears Holdings Corporation be included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended January 28, 2017.

Audit Committee

Ann N. Reese, Chair

William C. Kunkler, III

Thomas J. Tisch

 

 

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OTHER INFORMATION

Other Business That May Come Before the Meeting

 

 

Our management does not intend to bring any other business before the meeting for action and has not been notified of any other business proposed to be brought before the meeting. However, if any other

business should be properly presented for action, it is the intention of the persons named on the proxy card to vote in accordance with their judgment on such business.

 

 

2018 Annual Meeting of Stockholders

 

 

Procedures for Submitting Stockholder Proposals

If you want to include a stockholder proposal in the proxy statement for our 2018 Annual Meeting pursuant to Rule 14a-8 under the Exchange Act, it must be delivered to the Company not later than December 1, 2017, and it must satisfy the rules and regulations of the SEC to be eligible for inclusion in the proxy statement for that meeting. However, if the date of our 2018 Annual Meeting changes by more than 30 days from anniversary of the date of our 2017 Annual Meeting, then the deadline is a reasonable time before we begin to print and mail proxy materials for the 2018 Annual Meeting.

If you want to submit a stockholder proposal for our 2018 Annual Meeting, but you do not require that the proposal be included in the

Company’s proxy materials, you must notify the Company of such proposal on or prior to the date that is 90 days before the 2018 Annual Meeting. However, if the 2018 Annual Meeting is not held on or within eight days of May 22, 2018, and if we provide you with less than 100 days’ notice or public disclosure of the 2018 Annual Meeting date, your notice must not be received later than the 10th day following the date on which we give notice or public disclosure of the meeting date. Your notice must also include the information required by our By-Laws.

All stockholder proposals must be delivered to the Company at the following address: Sears Holdings Corporation, Law Department, 3333 Beverly Road, Hoffman Estates, Illinois 60179, Attn: Corporate Secretary.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

 

Section 16(a) of the Exchange Act requires our directors and executive officers and the beneficial holders of more than 10% of our common stock to file reports of ownership and changes in ownership with respect to our common stock with the SEC. Based on a review of these reports and written representations from our directors and executive

officers that no other reports were required, all Section 16(a) filing requirements were met during fiscal year 2016, except that due to inadvertent administrative error by the Company, the Initial Statement of Beneficial Ownership of Securities on Form 3 filed by Mr. Skelley was filed late.

 

 

Solicitation of Proxies

 

The proxies are solicited by our Board of Directors. We will pay the cost to solicit proxies. Directors and officers of the Company and employees of its affiliates may solicit proxies either personally or by telephone, by facsimile transmission or through the Internet.

IMPORTANT NOTE ON VOTING

 

The interest and cooperation of all stockholders in the affairs of Sears Holdings Corporation are considered to be of the greatest importance by your management. Even though you expect to attend the Annual

Meeting, it is requested that, whether your share holdings are large or small, you promptly vote by telephone, through the Internet or by mail (if you received your proxy materials by mail).

 

 

SEARS HOLDINGS CORPORATION - 2017 Proxy Statement     37  


Table of Contents

 

   LOGO

 

SEARS HOLDINGS CORPORATION

3333 BEVERLY ROAD

HOFFMAN ESTATES, IL 60179

  VOTE BY INTERNET - www.proxyvote.com
 

Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on May 9, 2017. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. To allow sufficient time for the trustees of the Sears Holdings Plans to tabulate the vote of the plan shares, you must vote by telephone or Internet or return this proxy so that it is received by 5:00 p.m. Eastern Time on May 8, 2017.

 

  ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
  If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
 

 

VOTE BY PHONE - 1-800-690-6903

 

Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on May 9, 2017. Have your proxy card in hand when you call and then follow the instructions. To allow sufficient time for the trustees of the Sears Holdings Plans to tabulate the vote of the plan shares, you must vote by telephone or Internet or return this proxy so that it is received by 5:00 p.m. Eastern Time on May 8, 2017.

 

  VOTE BY MAIL
  Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

 

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

 

  E19131-P88577             KEEP THIS PORTION FOR YOUR RECORDS

 

DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

 

SEARS HOLDINGS CORPORATION

 

The Board of Directors recommends you vote FOR the following:

 

For

All

    Withhold   All     For All   Except      

To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.

 

               
   

 1.

      Election of Directors                          
          Nominees:                      
     

 

    01)

 

 

  Bruce R. Berkowitz

 

 

    05)   Edward S. Lampert

                     
          02)     Paul G. DePodesta       06)   Ann N. Reese                      
          03)     Kunal S. Kamlani       07)   Thomas J. Tisch                      
          04)     William C. Kunkler, III                      
   
     The Board of Directors recommends you vote FOR the following:     For   Against   Abstain    
   
   

 2.

      Advisory vote to approve the compensation of our named executive officers.            
   
     The Board of Directors recommends you vote 1 YEAR for the following:   1 Year   2 Years   3 Years   Abstain    
   
   

 3.

      Advisory vote on the frequency of the advisory vote on the compensation of our named executive officers.            
   
     The Board of Directors recommends you vote FOR the following:     For   Against   Abstain    
   
   

 4.

 

    Ratify the appointment by the Audit Committee of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for fiscal year 2017.

         
   
   

 NOTE: Such other business as may properly come before the meeting or any adjournment or postponement thereof.

       
           
            Yes   No                  
   
   

 Please indicate if you plan to attend this meeting.

                   
   
   

 Please sign exactly as your name or names appear(s) hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, give full title.

 

       
           
                           

    Signature [PLEASE SIGN WITHIN BOX]

 

                 

  Date

 

 

                             Signature (Joint Owners)

 

 

Date

 

           

V.1.1


Table of Contents

LOGO

 

ADMISSION TICKET

 

You should present this admission ticket in order to gain admittance to the 2017 Annual Meeting of Stockholders. This ticket admits only the stockholder(s) listed on the reverse side and is not transferable. If shares are held in the name of a broker, trust, bank, or other nominee, you should bring with you a statement, proxy or letter from the broker, trustee, bank or nominee confirming the beneficial ownership of the shares as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

DIRECTIONS TO SEARS HOLDINGS CORPORATION

 

Directions from Midway Airport:

 

Take Cicero Avenue North to I-290, Eisenhower Expressway, West and exit on I-90, Northwest Tollway, West, towards Rockford. Stay on I-90 West to the exit at Beverly Road and proceed North (right). You will see the Sears Holdings Entrance on the right. Turn right into the Sears Holdings complex and follow the signs to Visitor Parking. Proceed from Visitor Parking to the Main Entrance (you passed it on the way to the Visitor Parking area).

 

Directions from the Loop or O’Hare Airport:

 

Take I-90/94 West and stay on I-90, Northwest Tollway, West, towards Rockford. Exit at Beverly Road and proceed North (right). You will see the Sears Holdings Entrance on the right. Turn right into the Sears Holdings complex and follow the signs to Visitor Parking. Proceed from Visitor Parking to the Main Entrance (you passed it on the way to the Visitor Parking area).

 

Directions from West to Route 59:

 

Take I-90, Northwest Tollway, East to Rt. 59 (first exit after Rt. 25). Exit at Rt. 59 and proceed North. At Higgins Road (Rt. 72) turn left. Proceed West on Higgins Road to Beverly Road. At Beverly Road, turn left and proceed South. You will see the Sears Holdings Entrance on the left. Turn left into the Sears Holdings complex and follow the signs to Visitor Parking. Proceed from Visitor Parking to the Main Entrance (you passed it on the way to the Visitor Parking area).

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com.

 

 

E19132-P88577

 

 

Sears Holdings Corporation
This Proxy is Solicited on Behalf of the Board of Directors
of Sears Holdings Corporation
May 10, 2017
The undersigned, revoking any proxy previously given, hereby appoint(s) Jonathan C. Babb, Jason M. Hollar and Robert A. Riecker, all of whom are officers of Sears Holdings Corporation, 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 2017 Annual Meeting of Stockholders of Sears Holdings Corporation to be held on May 10, 2017, at 9:00 a.m. Central Time, and at any adjournment or postponement of the meeting, and authorizes each proxy to vote at his discretion on any other matter that may properly come before the meeting, or at any adjournment or postponement of the meeting INCLUDING WITHOUT LIMITATION TO VOTE ON THE ELECTION OF SUCH SUBSTITUTE NOMINEES FOR DIRECTOR AS SUCH PROXIES MAY SELECT IN THE EVENT THAT ANY NOMINEE(S) NAMED ON THIS PROXY CARD BECOME(S) UNABLE TO SERVE AS A DIRECTOR.
This card also provides voting instructions for any common shares held on the undersigned’s behalf in the Sears Holdings Savings Plan, the Sears Holdings Puerto Rico Savings Plan, and the Sears Holdings Corporation Associate Stock Purchase Plan brokerage account.

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 election to the Board of Directors, FOR proposals 2 and 4 and 1 YEAR for proposal 3, except for any shares the undersigned holds in the Sears Holdings Savings Plan and the Sears Holdings Puerto Rico Savings Plan, which will be voted according to the rules of those plans, and his or her Sears Holdings Corporation Associate Stock Purchase Plan brokerage account, which will not be voted.

 

SEE REVERSE SIDE