We know that Sears retirees have questions regarding the announcement of the Sears and Kmart merger.   While many details are still being finalized, we will do our best to provide information on a timely basis.  Please see the following and continue to watch for updates as information becomes available.

New Question posted 3/8/05

For the merger to be approved, why do we require an affirmative vote by two-thirds of Sears shares versus a simple majority of Kmart share?

These approval levels are dictated by the law of the state of incorporation of the company. Sears is a New York corporation, and New York law requires a "yes" vote from two-thirds of Sears' outstanding shares to approve the merger. This makes it especially critical for all Sears shareholders to vote their shares since a non-vote is considered a no-vote. Kmart is a Delaware company, and Delaware law requires a "yes" from a simple majority of outstanding shares to approve the merger.

New Questions posted 3/1/05

When will shareholders be able to vote on the proposed merger?

Proxy materials with instructions on how to vote shares have been mailed to shareholders. Shareholders can vote their shares as soon as they receive their materials. The special meetings of shareholders will be held by both companies at Sears’ Hoffman Estates headquarters on March 24. The Kmart meeting will commence at 8:30 a.m., followed by the Sears meeting at 11 a.m. 

What communications will I be receiving regarding treatment of my Sears stock?

The proxy mailing will include information on how you can elect to receive stock, cash or a combination of stock and cash in exchange for your Sears stock. In addition, if you are in the Sears 401(k) Savings Plan and have money invested in the Sears Stock Fund, you will receive a separate proxy mailing containing the same information plus details about the "blackout period" for the 401(k) plan.

What decisions do I need to make with regard to my Sears stock prior to the merger closing in March?

Those who own Sears stock (whether purchased directly or obtained through pay/benefit plans such as the 401(k) Savings Plan, the Associate Stock Purchase Plan and stock option awards) have two decisions to make with regard to their stock. The first is to vote on the merger and the second is to elect whether they want cash, stock or a combination of cash and stock in exchange for their Sears stock. All Sears shareholders will receive one or more proxy mailings which explain these decisions and how to make them. 

What does the blackout period mean?

There will be a 7 to 15 day "blackout period" for the 401(k) plan, in which you will not be able to access your 401(k) account. There is also a three-business-day blackout period for stock options, in which you will not be able to exercise your options. Stock options that are not exercised prior to the merger will be cashed out as a result of the merger.

Which Sears, Roebuck board members will sit on the Sears Holdings board?

Besides, Alan Lacy, two current Sears board members have been named to the Sears Holdings board of directors: Donald Carty, former chairman of the board and CEO of AMR Corporation and American Airlines, Inc., and Michael Miles, former chairman of the board and CEO of Philip Morris Companies, Inc.

The remaining Sears Holdings board members include Kmart Chairman Edward Lampert and Kmart President and CEO Aylwin Lewis; Ann Reese, founder and executive director of Center for Adoption Studies and former CFO of ITT Corp.; Steven Mnuchin, chairman and co-chief executive officer of Dune Capital Management LP; William Crowley, senior vice president, finance of Kmart; Julian Day, former president and CEO of Kmart; and Thomas Tisch, managing partner of Four Partners, a private investment firm.

What is the trading symbol for the new company?

Sears Holdings will trade on the NASDAQ under the trading symbol SHLD.

Questions posted 2/3/05

When will shareholders receive more information on the proposed merger? When will shareholders get to vote on the merger?

Sears Holdings Corporation has filed a registration statement with the Securities and Exchange Commission (SEC) which includes a joint proxy statement-prospectus that, when finalized, will be used to solicit shareholder votes on the merger and serve as a prospectus for the shares to be issued in the merger. The joint proxy statement-prospectus will contain additional information about the merger and the special Kmart and Sears meetings of shareholders. The joint proxy statement-prospectus will be mailed to shareholders after it is declared effective by the SEC. The shareholder meetings are expected to be held approximately a month after the joint proxy statement-prospectus is mailed. 

Why will the board of directors of the new company reflect only 30 percent representation by Sears?

Since 45 percent of the shares held by Sears shareholders will be exchanged for cash at closing, while all Kmart shares will be exchanged for stock in the new company, the Sears equity position in the new company will be reduced. The composition of the new board approximates the proportion of former Sears and former Kmart shares that become shares of the new company in the merger.

The Sears Kmart merger is creating a new company that will combine the best aspects of Sears and Kmart in order to become a vibrant, unified, competitive company with excellent prospects for both Sears and Kmart operating units. 

Is there any provision either by the terms of the merger agreement or by law that requires Sears to fully fund its pension obligation?

Government regulations specify pension plan funding requirements. Sears retains an independent actuary to determine the amount of funding that is required to keep the Sears Pension Plan in compliance with these regulations. The Kmart merger transaction does not impact the funding requirements nor Sears commitment to make contributions to the plan. 

Will shares of Sears Holdings stock list on the New York Stock Exchange or NASDAQ? 

Following the completion of the merger, Sears Holdings plans to list on the NASDAQ, an important step in the branding of the new company. 

Sears Holdings' trading symbol and date of first trade will be determined in the near future. 

Does Sears Holdings anticipate paying dividends to shareholders?

It is expected that Sears Holdings will not provide a dividend payment to shareholders following the merger. This will allow the company to deploy this cash back into the business, which we hope will increase the rate of return for shareholders through the profitable growth of the company. We believe this will be the most effective way for shareholders to realize the value in their ongoing investment in the combined company. 

What does this mean for Sears shareholders who rely on dividend payments for income? 

Shareholders who prefer an investment that pays regular dividends have the option to elect cash for their Sears, Roebuck shares, subject to proration, and use the cash they receive to acquire securities that pay a dividend. Alternatively, current Sears shareholders interested in receiving cash on a regular basis do have the option to elect stock in Sears Holdings at the close of the merger, which election is subject to proration. They then can sell the shares they receive over time to continue to generate a cash stream, subject to the amount of their holdings and tax considerations. 

Will Eddie Lampert be electing cash or stock for his Sears, Roebuck shares? 

ESL Investments, which is controlled by Eddie Lampert and is a substantial shareholder of Sears, has chosen to elect stock for its holding, even if the value of the 0.5 of a share of Sears Holdings stock is worth less than $50 per share. This election enhances the opportunity for other Sears shareholders to receive cash for their shares if they so wish. 

How will Sears Holdings benefit investors? 

Sears Holdings' strategy is to operate as a more profitable retailer. The combination with Kmart will accelerate Sears' growth strategy. Together, Sears and Kmart will have more available resources and the substantial benefit of scale in being a $55 billion company. Sears Holdings will continue to invest in its business, products and people. The combined scale and assets should allow the company to generate higher rates of return for its investors than either company could generate on a stand alone basis.

Past Questions

What are the details of this transaction?

What’s happening?

Sears, Roebuck and Co. and Kmart Holding Corporation have signed a definitive merger agreement that provides for a combination of Sears and Kmart, creating a major new retail company named Sears Holdings Corporation, with headquarters in Hoffman Estates.  Following the combination, both Sears and Kmart will continue to operate separately under their respective brand names.

Who bought whom?

This is a merger, in which Sears and Kmart will both be wholly owned by a new company.  Sears shareholders will have the ability to receive either stock in the new company or cash in return for their current Sears shares at closing.  (Kmart shareholders will all receive stock in the new company.)  The new company – Sears Holdings Corporation -- will reflect the Sears name and will be headquartered in Hoffman Estates, the headquarters of Sears, Roebuck and Co.  We anticipate that Sears management will be significantly represented in the management of the new company.

This is a merger of equals in that the market value of both companies was roughly the same at the time of the announced transaction.  However, since Sears shareholders will have the ability to receive cash for a percentage of shares at closing and Kmart shareholders will not, the Sears equity position will be reduced and the transaction will be deemed an acquisition in the financial sense. The end result of the transaction is two partners coming together in a merger to create a new company, focused on growth, that will strengthen both and accelerate Sears’ off-mall growth strategy.

Why do Sears shareholders have a cash option?

Sears felt it was important to provide Sears shareholders with a choice between cash or stock to allow them to elect what is best for their individual investment situations. (Subject to pro rata conditions described below).

What will Sears shareholders receive for their Sears shares?

Sears shareholders will have the right to elect to receive $50 in cash or 0.5 shares of Sears Holdings for each Sears share.  However, only 55% of Sears shares will receive stock and only 45% will receive cash.  Thus, if holders of more than 55% of Sears shares elect to receive stock, those holders will be subject to proration. Similarly, if holders of more than 45% of  Sears shares elect to receive cash, those holders will be subject to proration. Holders who do not elect one way or another will receive whichever cash or stock is not oversubscribed by other holders. 

How will the new corporation stand in comparison to our competitors

After completion of the transaction, Sears Holdings will be the nation’s third largest retailer, with approximately $55 billion in annual revenues. Sears Holdings will operate 2,353 full-line and off-mall stores, second only to Wal-Mart in the retail industry, and will have approximately 400,000 employees.

Why are we doing this?  

We believe that the combination greatly strengthens both Sears and Kmart and accelerates Sears’ off-mall growth strategy.  The creation of Sears Holdings will have a major impact on the retail landscape, and is expected to create shareholder value and operational advantages though scale, distribution, and product and service differentiation among the most impressive in the industry. 

Who are the leaders of the new corporation?  

Edward Lampert, chairman of Kmart, will become the chairman of Sears Holdings. Alan Lacy will be vice chairman and chief executive officer of Sears Holdings and Aylwin Lewis, current Kmart CEO, will be president of Sears Holdings and will become CEO of Kmart and Sears Retail.

Who will sit on the board of the new corporation?

Lampert, Lacy and Lewis will be part of the 10-member Sears Holdings board, which will include seven members of the current Kmart board and three members of the current Sears board.

When do you expect the merger to be completed?

The merger is expected to be completed by the end of March 2005, pending, among other things, regulatory approvals and approval by Sears and Kmart shareholders. 

What changes are going to happen to the business?

Will Kmart stores be converted into Sears stores?

A substantial number of off-mall Kmart stores are expected to be converted over time to the Sears nameplate, in addition to the 50 Kmart stores acquired by Sears earlier this year that will be converted by fourth quarter 2005.

Will Sears stores be converted to Kmart stores?

This could be an option, and will depend on analysis of market demographics. There are no plans at this time to convert Sears stores to Kmart nameplates.

Will Sears stores offer Kmart brands, and will Kmart stores offer Sears brands?

The combined company will benefit customers by providing a greater choice of preferred brands including Craftsman and Kenmore, Lands’ End, Apostrophe and Covington from Sears, and Jaclyn Smith, Joe Boxer, Kathy Ireland and Martha Stewart Everyday products from Kmart. It is too early to say at this time which brands will appear in which stores.

Will I continue to be able to use my Sears Card and Sears Gold MasterCard?

Yes, you will continue to be able to use the Sears Card and Sears Gold MasterCard for purchases at Sears. Sears Gold MasterCard also can be used at Kmart.

How does this affect my benefits?

Will retiree medical benefits be impacted by the merger?

Transition teams have been convened to evaluate the benefits programs of both companies and to make recommendations for the new company post-merger. The Sears Holdings benefits program will be announced some time following the merger. Until that time all current programs remain in effect.

How will the merger impact my pension?

Retirees vested in the pension plan will not lose any earned benefits.

What impact will this merger have on my retiree life insurance?

The merger agreement has no effect on the settlement of the retiree life insurance litigation.

What impact will this merger have on stock in my 401 (k) and stock purchase plan?

Given that we very recently announced the merger, we are just now convening a transition team to discuss these and many other matters.

How will the merger affect my stock options?

You may exercise any vested options at any time prior to the merger close, subject to any applicable blackout periods. You will receive a cash payment for all unexercised options you hold at that time, based on the difference of the “blended merger price” and the exercise price of your options. 

What is the blended merger price that will be used to pay option holders?

The blended merger price is a cash amount designed to mirror the value of the 45%/55% cash/stock consideration that Sears shareholders will receive in the merger. It is calculated as followed:
     45% x  $50  plus 55%  x  ½ of the Kmart stock price at closing

For example, if Kmart stock price is $101* at the time the merger closes, the blended merger price is:
     (45% x $50) + (55% x ½ of $101*) = $22.50 + $27.77 = $50.27

* This price for illustrative purposes only.

How do I exercise my vested stock options?

You can exercise your options online or by telephone. To exercise via the Internet, access www.88sears.com and click on Stock Options under Financial Benefits. After entering your Social Security number and Financial Benefits password, click on Stock Option Plans. You will need your trading PIN to exercise options via the Internet. To exercise over the phone, call 1-888-88sears and select option 2 from the main menu (Sears Financial Benefits). Follow the prompts to speak to a customer service representative.

Can I use my retiree  discount card at Kmart?

The Sears retiree discount can not be applied to Kmart purchases at this time.

In connection with the proposed transaction, Sears will be filing proxy statements and other materials with the Securities and Exchange Commission.  Please read these materials when they are available because they contain important information.  Sears and its officers and directors may be deemed to be participants in the solicitation of proxies with respect to the proposed transaction matters.  Information regarding such individuals is included in Sears’ proxy statements and Annual Reports on Form 10-K previously filed with the SEC, and in the proxy statement relating to the proposed transaction when it becomes available.  Investors may obtain a free copy of the proxy statements and other relevant documents at the SEC’s website at http://www.sec.gov.

This document contains forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from expected results.  Risks and uncertainties include failure to quickly realize cost-savings from the transaction as a result of technical, logistical, competitive and other factors; competitive conditions in retail; changes in consumer confidence, tastes, preferences and spending; the availability of consumer debt; the successful execution of, and customer response to, our strategic initiatives, including the Full-line Store strategy and the conversion and integration of the Kmart stores and other new store locations; the pace of growth in our store locations; the possibility that we will identify new business and strategic options; the outcome of pending legal proceedings; anticipated cash flow; changes in our debt ratings and cost of funds; general economic conditions and normal business uncertainty.  We intend the forward-looking statements to speak only as of the time first made and we do not undertake to update or revise them as more information becomes available.