SEARS, ROEBUCK AND CO.
SEARS TOWER
CHICAGO, ILLINOIS 60684
February 21, 1995
EDWARD A. BRENNAN
Chairman of the Board
Dear Shareholder:
The Company will hold a special meeting of shareholders on Friday, March
31, 1995 to consider and vote on a proposal to separate its Sears
Merchandise and Allstate Insurance businesses. I have recommended this
``spin-off'' proposal to the Board of Directors, and it has unanimously
approved it. The Board and I recommend that you vote FOR the proposal.
Under the proposal, each Sears common shareholder would receive, as a
special tax-free dividend, just under one share of Allstate stock for each
Sears common share. In other words, you would own two separate stocks-Sears
and Allstate-that together would represent the combined investment
currently represented by only your Sears stock. The value of the Allstate
stock you would receive will, of course, depend on market prices at the
time of the spin-off. However, based on a February 21, 1995 Allstate stock
price of $ 26-3/8, the estimated value of the special dividend would be
approximately $24.50 per Sears common share and the Sears stock price would
be expected to decrease by a similar amount after the spin-off. After the
spin-off, your combined annual dividends on the two stocks are expected to
be approximately $1.64 (as compared to the current annual dividend of $1.60
on your Sears stock).
We believe the timing is right for Sears and Allstate to operate
independently. Each business has excellent management, good operating
performance and financial strength. We believe that, as focused companies,
Sears and Allstate can perform even better. Sears would continue to operate
its domestic and international merchandise operations, and Allstate would
continue to operate its property, life and other insurance operations.
Sears and Allstate have their own financial, investment and operating
characteristics. Separating the two companies would enable management of
each of them to concentrate attention and financial resources on its own
business without regard to the objectives and policies of the other
business. As completely separate companies, Sears and Allstate each would
be able to offer employees stock plans tied directly to the results of
their efforts, unaffected by the performance of the other business.
Finally, we believe that this proposal would allow investors to better
evaluate each business, enhancing the likelihood that each would achieve
appropriate market recognition for its performance.
This proposal is another of the actions we have initiated in recent years
designed to enhance shareholder value. As you know, the corporate
repositioning program of 1993 involving our financial services businesses
made the Company stronger by significantly reducing debt and strengthening
its financial condition.
The meeting will begin promptly at 11 a.m. in the Arthur Rubloff Auditorium
of the Chicago Historical Society, Clark Street at North Avenue, Chicago,
Illinois. The only business on the agenda is the spin-off proposal. The
official Notice of Meeting, proxy statement and form of proxy are included
with this letter.
The vote of every shareholder is particularly important for this special
meeting. Mailing your completed proxy will not prevent you from voting in
person at the meeting if you wish to do so.
Please sign, date and promptly mail your proxy. Your cooperation will be
greatly appreciated.
Sincerely,
(signed)
Edward A. Brennan
SEARS, ROEBUCK AND CO.
SEARS TOWER
CHICAGO, ILLINOIS 60684
February 21, 1995
DAVID SHUTE
Senior Vice President
General Counsel
and Secretary
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders (the ``Special Meeting'') of Sears,
Roebuck and Co. (the ``Company'') will be held in the Arthur Rubloff
Auditorium of the Chicago Historical Society, Clark Street at North Avenue,
Chicago, Illinois, on Friday, March 31, 1995, at 11:00 a.m., to consider
and vote on a proposal (the ``Distribution Proposal'') that, as described
more fully in the attached Proxy Statement, provides for the distribution
(the ``Distribution'') to the holders of the Company's common shares, par
value $.75 per share (``Sears Common Shares''), of all 360,500,000 shares
of the common stock, par value $.01 per share (``Allstate Common Stock''),
of The Allstate Corporation (``Allstate'') that are owned by the Company.
The Distribution will result in approximately 80.2% of the outstanding
shares of Allstate Common Stock being distributed to holders of Sears
Common Shares. The remaining Allstate Common Stock was sold to the public
in June 1993.
Holders of record at the close of business on February 21, 1995 of Sears
Common Shares or of the Company's Series A Mandatorily Exchangeable
Preferred Shares are entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof. Holders of record of
the Company's 8.88% Preferred Shares, First Series are not entitled to vote
at the Special Meeting and accordingly no form of proxy is enclosed with
the accompanying Proxy Statement mailed to such holders. No business other
than the Distribution Proposal will be considered at the Special Meeting or
at any adjournment or postponement thereof.
As described more fully in the accompanying Proxy Statement, action taken
at the Special Meeting may entitle shareholders who are entitled to vote
and who fulfill the requirements of Section 623 of the New York Business
Corporation Law (a copy of which is included in Appendix D to the Proxy
Statement) to receive payment for their shares.
By Order of the Board of Directors,
(signed)
David Shute
Secretary
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the special meeting, please sign and date
the enclosed proxy and mail it promptly in the envelope provided, which
requires no postage if mailed in the United States.
SEARS, ROEBUCK AND CO.
PROXY STATEMENT FOR SPECIAL MEETING
PROXY STATEMENT SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Proxy Statement, which should be read in its entirety.
The Special Meeting
Date, Time and Place of the Special Meeting. The Special Meeting of
Shareholders (the ``Special Meeting'') of Sears, Roebuck and Co. (the
``Company'') will be held in the Arthur Rubloff Auditorium of the Chicago
Historical Society, Clark Street at North Avenue, Chicago, Illinois, on
March 31, 1995, at 11:00 a.m.
Purpose of the Special Meeting. The Special Meeting is being held to
consider and vote on a proposal (the ``Distribution Proposal'') to approve
the distribution (the ``Distribution''), subject to the conditions
described elsewhere in this Proxy Statement, to the holders (``Sears Common
Shareholders'') of the Company's common shares, par value $.75 per share
(``Sears Common Shares''), of all 360,500,000 shares of the common stock,
par value $.01 per share (``Allstate Common Stock''), of The Allstate
Corporation (``Allstate'') that are owned by the Company.
Recommendation of the Company's Board. The Board of Directors of the
Company, including the five directors who are also directors of Allstate,
has unanimously approved the Distribution Proposal and recommends that
shareholders vote FOR the Distribution Proposal. For a description of the
reasons for the Distribution, see ``The Distribution Proposal-Background
and Reasons for the Distribution''.
Special Meeting Record Date. February 21, 1995 (the ``Special Meeting
Record Date'').
Voting. At the Special Meeting, each holder of record as of the Special
Meeting Record Date of Sears Common Shares or of Series A Mandatorily
Exchangeable Preferred Shares (``PERCS'') will be entitled to one vote for
each share held as of such date. Holders of record of the Company's 8.88%
Preferred Shares, First Series (the ``8.88% Preferred Shares'') are not
entitled to vote at the Special Meeting.
The Company is seeking approval of the Distribution Proposal by the holders
of at least two-thirds of the outstanding shares entitled to vote at the
Special Meeting. However, if the Distribution Proposal is approved by the
holders of less than two-thirds of the outstanding shares, but is approved
by the holders of a majority of the shares voted at the Special Meeting,
the Company may request a court to rule that shareholder approval is not
required and consummate the Distribution if a favorable ruling is obtained.
Appraisal Rights. Shareholders of the Company (including holders of PERCS)
who are entitled to vote at the Special Meeting and who do not vote for the
Distribution Proposal and who dissent by complying with the procedures
required by the New York Business Corporation Law (the ``NYBCL'') may have
the right to receive, instead of the Distribution, payment for the fair
value of their shares. However, the Company expects to request a court to
rule that no such right exists by reason of the Distribution. See ``The
Special Meeting-Appraisal Rights.''
Certain Considerations. Before acting on the Distribution Proposal,
shareholders should consider the factors discussed under ``Certain
Considerations'' in this Proxy Statement and under ``Certain Factors
Affecting The Allstate Corporation'' in the Allstate Appendix, as well as
other information set forth herein.
The Distribution
Shares to be Distributed. The Distribution will be made to Sears Common
Shareholders of record as of the Distribution Record Date (as defined
below), which has not yet been established. Each such shareholder will
receive an estimated 0.93 share of Allstate Common Stock for each Sears
Common Share held. The actual fraction will equal 360,500,000 (the number
of shares of Allstate Common Stock owned by the Company) divided by the
number of Sears Common Shares outstanding on the Distribution Record Date.
The .93 estimate is based on the 351,899,360 Sears Common Shares
outstanding on the Special Meeting Record Date, as increased by (i) the
35,672,979 Sears Common Shares to be issued on March 20, 1995 in exchange
for outstanding PERCS and (ii) the number of employee stock options that
are exercised through the mid-1995 anticipated Distribution Record Date,
assuming that option exercises continue at their 1994 rate. See ``The
Distribution Proposal-Determination of the Distribution Ratio.''
The Company has given notice to the holders of PERCS depositary shares of
its election to make an optional exchange of Sears Common Shares for the
PERCS on the basis of approximately 1.24 Sears Common Shares for each PERCS
depositary share. Holders of PERCS who continue to hold such Sears Common
Shares through the Distribution Record Date will be entitled to receive the
Distribution.
Distribution Record Date. The ``Distribution Record Date'' will be
established by the Board shortly before the Distribution.
Distribution Date. The ``Distribution Date'' will be established by the
Board shortly before the Distribution and is presently expected to be in
mid-1995. On the Distribution Date, the Company will deliver shares of
Allstate Common Stock to a distribution agent to be selected by the Company
(the ``Distribution Agent''). The Distribution Agent will mail stock
certificates as soon as practicable thereafter. See ``The Distribution
Proposal-Manner of Effecting the Distribution.''
Fractional Share Interests. No certificates representing fractional shares
will be issued. Fractional share interests will be sold by the Distribution
Agent and the net proceeds (after deduction of brokerage fees) will be
remitted to shareholders who would otherwise be entitled to the fractional
shares.
Conditions to the Distribution. There are several conditions to the
Distribution. In general, these conditions may be waived by the Board. Even
if all conditions are satisfied, the Board has reserved the right to
abandon or defer the Distribution. See ``The Distribution
Proposal-Conditions; Termination'' and ``-Federal Income Tax Aspects of the
Distribution.''
Reasons for the Distribution. The Distribution is designed to separate the
Company's domestic and international merchandising operations from
Allstate's property, liability, life and other insurance operations. The
separation of these businesses, which have distinct financial, investment
and operating characteristics, will enable management of each business
group to concentrate its attention and financial resources on its own
business group without regard to the corporate objectives and policies of
the other business group. Further, as separate companies, the Company and
Allstate will each be able to offer prospective and current employees
(including management) stock plans tied directly to the results of their
efforts and unaffected by the performance of the other group. Also, the
Board believes that the Distribution will allow investors to evaluate
better the performance and investment characteristics of each business
group, enhancing the likelihood that each will achieve appropriate market
recognition of its performance. See ``The Distribution Proposal-Background
and Reasons for the Distribution.''
Tax Consequences. The Company has conditioned the Distribution on receipt
of a ruling from the Internal Revenue Service to the effect, among other
things, that receipt of Allstate Common Stock by Sears Common Shareholders
will be tax-free for federal income tax purposes. The Board has reserved
the right to waive the receipt of such a ruling, but will not do so unless,
in the Board's judgment, based on an opinion of counsel, the receipt of
Allstate Common Stock will be tax-free. See ``The Distribution
Proposal-Federal Income Tax Aspects of the Distribution.'' For a
description of the consequences to the Company, its shareholders, and
Allstate if the Distribution were not to qualify as tax-free, see ``Certain
Considerations-Certain Tax Considerations.''
Accounting Treatment. If the shareholders of the Company approve the
Distribution Proposal at the Special Meeting, the Company will thereafter
present the business of Allstate and its subsidiaries as a discontinued
operation to the extent financial information for periods prior to the
Distribution is required to be included in the Company's historical
financial statements. After the Distribution, the business of Allstate and
its subsidiaries will continue to be reflected in separate consolidated
financial statements of Allstate.
Principal Business to be Retained by the Company. Following the
Distribution, the principal business of the Company will be its
merchandising operations in the United States, Canada and Mexico. The
Company is among the largest retailers in the world, on the basis of sales
of merchandise and services. See ``Business of the Company After the
Distribution.''
Post-Distribution Dividend Policies. It is currently expected that,
following the Distribution, the sum of the annual dividends to be received
by a Sears Common Shareholder who retains the Allstate Common Stock
received in the Distribution will be approximately $1.64 (as compared to
the Company's current annual dividend rate of $1.60 per Sears Common
Share). It is also expected that the Company will pay approximately $.92 of
this amount and that Allstate will continue to pay dividends at its new
annualized rate (effective March 30, 1995) of $.78 per share of Allstate
Common Stock (of which approximately $.72 would be attributable to the
estimated 0.93 share of Allstate Common Stock that will be distributed for
each Sears Common Share in the Distribution). No such dividends have been
declared, however, and the actual amount of such dividends will remain
subject to the discretion of the respective Boards of Directors of the two
companies and will depend on results of operations, cash requirements,
future prospects and other factors. See ``The Distribution Proposal-Certain
Considerations-Dividend Policies.''
Trading Market. Sears Common Shares are expected to continue to be listed
on the New York Stock Exchange (``NYSE''), the Chicago Stock Exchange
(``CSE'') and the Pacific Stock Exchange (``PSE'') and on several foreign
stock exchanges. Allstate Common Stock is expected to continue to be listed
on the NYSE and the CSE.
The market price of Sears Common Shares and Allstate Common Stock after the
Distribution will be determined by the marketplace. It is expected that the
market price of a Sears Common Share after the Distribution will decline to
reflect the market value of the estimated 0.93 share of Allstate Common
Stock to be received in the Distribution for each Sears Common Share. The
market price of Allstate Common Stock after the Distribution may be
influenced by many factors, including, among others, the market impact of
the substantial increase in the number of shares of Allstate Common Stock
available to trade in the market following the Distribution. See ``Certain
Considerations-Changes in Trading Prices of Sears Common Shares and
Allstate Common Stock.''
Comparison of Rights of Shareholders of the Company and Allstate. After the
Distribution, the rights of the Company's shareholders will be governed by
New York law and the Company's charter documents. The rights of Allstate's
stockholders will be governed by Delaware law and Allstate's charter
documents. There are significant differences between New York and Delaware
law, and between the charter documents of the Company and Allstate, which
affect the rights of shareholders, including statutory differences relating
to shareholder votes for mergers or other corporate reorganizations and the
regulation of certain business combinations with ``interested
shareholders''. In addition, dissenters' rights are generally more limited
under Delaware law than under New York law. See ``Comparison of Rights of
Shareholders of the Company and Allstate.''
Selected 1994 Operating Results
Sears. The Company reported 1994 fourth-quarter consolidated net income of
$685 million, or $1.74 per common share, compared with net income of $545
million, or $1.39 per common share in 1993. Fourth quarter earnings
included a $195 million extraordinary gain resulting from the early
extinguishment of debt related to Sears Tower, a $104 million provision
(after minority interest) for additional California earthquake catastrophe
losses and an $80 million charge (after minority interest) for Allstate's
early retirement program. The 1994 results reflect improved performance in
domestic operations at the Sears Merchandise Group on higher merchandise
sales, a lower provision for uncollectible accounts due to a favorable
trend in write-offs and a lower ratio of selling and administrative
expenses to revenues, and better underwriting results, excluding the
California earthquake catastrophe losses, at Allstate.
The Company's consolidated net income for the year was $1.45 billion, or
$3.66 per common share, compared with 1993 net income of $2.37 billion, or
$6.13 per common share. Results for 1994 included $846 million in insurance
catastrophe losses from the California earthquake (without giving effect to
a $65 million benefit after taxes and minority interest from the release of
excess Hurricane Andrew catastrophe reserves), the extraordinary gain from
the early extinguishment of the Sears Tower debt and the charge for
Allstate's early retirement program. Included in 1993 results were a $635
million gain for the initial public offering of Allstate, an $87 million
favorable income tax adjustment resulting from federal income tax
legislation, $176 million of income from discontinued operations and $211
million of extraordinary losses related to the early paydown of debt. The
results in 1994 reflect the significant impact of the California earthquake
catastrophe losses, which more than offset improvements in the Sears
Merchandise Group on higher merchandise sales, a lower provision for
uncollectible accounts due to a favorable trend in write-offs and a lower
ratio of selling and administrative expenses to revenues and improved
underwriting performance at Allstate, excluding the California earthquake
losses.
Allstate. Allstate reported fourth-quarter net income of $163 million, or
$0.37 per share, compared with $259 million, or $0.57 per share in the 1993
period. The decline in 1994 earnings reflects $130 million of additional
catastrophe losses for the California earthquake and a $100 million charge
related to Allstate's early retirement program. Net income for 1994 was
$484 million, or $1.08 per share, compared with 1993 net income of $1.30
billion, or pro forma earnings per share of $2.99. Results in 1994 were
significantly impacted by after-tax catastrophe losses from the California
earthquake of $1.06 billion (without giving effect to an $81 million
after-tax benefit from the release of excess Hurricane Andrew catastrophe
reserves) and the charge related to the early retirement program. For
further discussion of Allstate's 1994 results, see ``Selected 1994
Operating Results'' and ``1994 California Earthquake'' in the Allstate
Appendix.
Allstate
Allstate is engaged, principally in the United States and Canada and
primarily through agents working exclusively for Allstate, in
property-liability insurance (including personal property and casualty
insurance and business insurance) and life insurance. Allstate, with more
than 20 million customers, is the country's second largest
property-liability insurer on the basis of 1993 statutory premiums earned
and is a major life insurer. See ``Business of Allstate'' in the Allstate
Appendix.
Before acting on the Distribution Proposal, shareholders should consider
all of the factors discussed under ``Certain Factors Affecting the Allstate
Corporation'' in the Allstate Appendix, including the inherent uncertainty
in the process of establishing property-liability loss reserves and the
potentially significant impact on the financial condition and results of
operations of property-liability insurers of claims arising out of
catastrophes.
Additional information regarding Allstate and the Allstate Common Stock is
set forth or incorporated by reference in the Allstate Appendix, which is
attached hereto as Appendix A and constitutes a part of the Proxy
Statement. The Allstate Appendix should be read in its entirety.
SEARS, ROEBUCK AND CO.
HISTORICAL SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary consolidated financial
information of the Company for the year-to-date periods ended October 1,
1994 and September 30, 1993 and the five years ended December 31, 1993. The
summary information has been derived from and should be read in conjunction
with the financial statements and financial statement schedules included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1993 and Quarterly Report on Form 10-Q for the quarterly period ended
October 1, 1994, both of which are incorporated herein by reference.
Discontinued operations include the operating results and financial
position of Dean Witter, Discover & Co. and Coldwell Banker's residential
services businesses and commercial division.
Year-To-Date Through Year Ended December 31,
Oct. 1, Sept. 30,
1994 1993 1993 1992 1991 1990 1989
(millions, except per common share data)
Operating results
Revenues $38,480 $36,174 $50,838 $52,345 $50,983 $50,283 $48,466
Cost and expenses 36,523 33,592 47,234 52,479 48,568 48,069 45,383
Restructuring - - - 3,108 - 265 -
Interest 1,090 1,147 1,498 1,511 1,681 1,746 1,634
Funding cost on
securitized
receivables 292 432 553 667 655 440 217
Total funding
costs 1,382 1,579 2,051 2,178 2,336 2,186 1,851
Operating income
(loss) 867 1,435 2,106 (4,753) 734 203 1,449
Other income 84 685 852 54 139 153 139
Income (loss) be-
fore income taxes
(benefit) and
minority interest 951 2,120 2,958 (4,699) 873 356 1,588
Income taxes (benefit)
Current
operations 117 171 401 (2,114) (38) (228) 234
Fresh start
adjustment - - - - - (139) -
Income (loss) from
continuing
operations 769 1,865 2,409 (2,567) 916 713 1,311
Income from dis-
continued
operations - 176 176 508 363 189 198
Extraordinary loss - (211) (211) - - - -
Cumulative effect of
accounting changes - - - (1,873) - - -
Net income (loss) 769 1,830 2,374 (3,932) 1,279 902 1,509
Earnings (loss) per
common share
Income (loss)
from continuing
operations 1.92 4.82 6.22 (7.02) 2.65 2.08 3.74
Net income
(loss) 1.92 4.73 6.13 (10.72) 3.71 2.63 4.30
Cash dividends
declared per
common share 1.20 1.20 1.60 2.00 2.00 2.00 2.00
Financial position
Investments $48,904 $46,419 $49,726 $42,176 $39,824 $33,746 $28,901
Receivables 20,940 18,365 20,168 18,254 16,814 18,339 18,483
Merchandise
inventories 4,505 3,793 3,518 4,048 4,459 4,074 4,358
Property and
equipment, net 5,684 5,298 5,529 5,483 5,842 5,484 5,027
Net assets of
discontinued
operations - 357 - 3,086 2,416 2,134 1,966
Total assets 93,914 86,622 90,808 85,491 79,554 72,639 65,219
Insurance
reserves 39,558 36,854 37,444 35,889 31,612 27,184 22,331
Short-term
borrowings 6,573 4,032 4,929 4,608 2,215 7,882 7,058
Long-term debt 12,440 13,343 12,926 13,735 17,585 11,849 9,344
Total debt 19,013 17,375 17,855 18,343 19,800 19,731 16,402
Securitized
receivables 4,615 6,352 5,791 7,812 8,330 6,040 3,526
Total funding 23,628 23,727 23,646 26,155 28,130 25,771 19,928
Shareholders'
equity 10,689 10,016 11,664 10,773 14,188 12,824 13,622
Book value per
common share 26.77 25.01 29.58 27.89 40.29 37.38 39.77
Note: Series A Mandatorily Exchangeable Preferred Shares (PERCS) are
considered common shares for purposes of calculating book value per
common share and earnings (loss) per common share. For the year
ended December 31, 1992, including PERCS as common shares resulted
in an anti-dilutive impact on the loss per common share calculation.
Excluding the PERCS from the calculation, the loss per common share
from continuing operations and net loss per common share for the
year ended December 31, 1992 would have been ($7.78) and ($11.73),
respectively. The net loss applicable to common shares, including
all preferred share dividends, for the year ended December 31, 1992
was $4.05 billion. Financial position for Oct. 1, 1994 and Dec. 31,
1993 reflects the adoption of new accounting rules for certain
investments in debt securities. Operating results and financial
position for 1994, 1993 and 1992 reflect the adoption of new
accounting rules for postretirement and postemployment benefits.
SEARS, ROEBUCK AND CO.
PRO FORMA SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary consolidated pro forma
financial information of the Company for the year-to-date period ended
October 1, 1994 and the year ended December 31, 1993. The pro forma
information gives effect to the current assumptions relating to the
proposed spin-off of Allstate, the contemplated divestiture of Homart at
book value and other adjustments as described under ``Sears, Roebuck and
Co. Notes to Pro Forma Condensed Consolidated Financial Statements.'' The
summary information has been derived from and should be read in conjunction
with the pro forma condensed consolidated financial statements included
herein and the financial statements and financial statement schedules
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Report on Form 10-Q for the quarterly
period ended October 1, 1994, both of which are incorporated herein by
reference.
Year-To-Date
Through Year Ended
Oct. 1, Dec. 31,
(millions, except per common share data) 1994 1993
Operating results
Revenues $22,201 $29,593
Cost and expenses 20,432 27,456
Interest 913 1,250
Funding cost on securitized receivables 292 432
Total funding costs 1,205 1,682
Operating income 856 887
Other income 30 115
Income before income taxes and minority interest 886 1,002
Income taxes 360 345
Income from continuing operations 524 649
Earnings from continuing operations per
common share 1.29 1.62
Cash dividends declared per common share 0.69 0.92
Financial position
Retail customer receivables $16,702
Merchandise inventories 4,505
Property and equipment, net 4,522
Total assets 30,221
Short-term borrowings 5,835
Long-term debt 9,543
Total debt 15,378
Securitized receivables 4,615
Total funding 19,993
Shareholders' equity 3,840
Book value per common share 9.08
Note: Series A Mandatorily Exchangeable Preferred Shares are considered
common shares for purposes of calculating book value per common
share and earnings from continuing operations per common share.
THE SPECIAL MEETING
This Proxy Statement is being furnished to shareholders of the Company in
connection with the solicitation of proxies on behalf of its Board to be
used at the Special Meeting to be held on Friday, March 31, 1995, at 11:00
a.m. in the Arthur Rubloff Auditorium of the Chicago Historical Society,
Clark Street at North Avenue, Chicago, Illinois, and at any adjournment or
postponement thereof. This Proxy Statement is first being mailed to the
Company's shareholders on or about February 22, 1995. The principal
executive offices of the Company are located at Sears Tower, Chicago,
Illinois 60684, and the Company's telephone number at that address is (800)
SEARS 80.
Purpose of the Special Meeting
The Special Meeting is being held to consider and vote on the Distribution
Proposal. The Distribution Proposal is to approve the Distribution, subject
to the conditions described elsewhere in this Proxy Statement, to Sears
Common Shareholders of all 360,500,000 shares of Allstate Common Stock that
are owned by the Company. The Distribution will result in approximately
80.2% of the outstanding shares of Allstate Common Stock being distributed
to Sears Common Shareholders. The remaining Allstate Common Stock was sold
to the public in June 1993.
The Board of Directors of the Company has unanimously approved the
Distribution Proposal and recommends that shareholders vote FOR the
Distribution Proposal. For a description of the reasons for the
Distribution, see ``The Distribution Proposal-Background and Reasons for
the Distribution.'' For a description of the conditions to the
Distribution, see ``The Distribution Proposal-Conditions; Termination.''
Shareholders should consider the factors discussed under ``Certain
Considerations'' and those discussed under ``Certain Factors Affecting The
Allstate Corporation'' in the Allstate Appendix, as well as the other
information set forth herein, before acting on the Distribution Proposal.
Voting Rights and Proxy Information
Only holders of record at the close of business on the Special Meeting
Record Date of Sears Common Shares or PERCS will be entitled to notice of
and to vote at the Special Meeting or any adjournment or postponement
thereof. As of the Special Meeting Record Date, there were 351,899,360
Sears Common Shares and 7,187,500 PERCS outstanding and entitled to vote at
the Special Meeting. Such holders of shares (including PERCS) are entitled
to one vote per share on the Distribution Proposal. Holders of record of
the 8.88% Preferred Shares are not entitled to vote at the Special Meeting.
The holders of one-third of the total number of shares (including PERCS)
entitled to vote, present in person or represented by proxy, constitute a
quorum for the transaction of business at the Special Meeting.
The Company believes that under New York law, which governs the
Distribution, a vote of shareholders is not required in connection with the
Distribution. New York law requires the approval of the holders of at least
two-thirds of a corporation's outstanding shares entitled to vote thereon
for a sale, lease, exchange or other disposition of all or substantially
all of the assets of the corporation. The Company believes that a dividend,
such as the Distribution, is not an ``other disposition'' and, even if the
Distribution were viewed as such, the Allstate Common Stock proposed to be
distributed does not constitute ``all or substantially all'' the assets of
the Company. Although the Company believes that shareholder approval is not
required, the Company is seeking such approval because this issue has not
been definitively settled under New York law. The Company is seeking
approval of the Distribution Proposal by the holders of at least two-thirds
of the outstanding shares entitled to vote at the Special Meeting. If the
Distribution Proposal is approved by the holders of less than two-thirds of
such outstanding shares, but is approved by the holders of a majority of
the shares voted at the Special Meeting, the Company may request a court to
rule that shareholder approval of the Distribution Proposal is not required
and consummate the Distribution if a favorable ruling is obtained.
Abstentions and broker non-votes are counted as shares present for
determination of a quorum. For purposes of determining whether the
Distribution Proposal is approved by the holders of at least two-thirds of
the outstanding shares entitled to vote at the Special Meeting, abstentions
and broker non-votes will have the same effect as votes against the
Distribution Proposal. For purposes of determining whether the Distribution
Proposal has been approved by the holders of a majority of the shares voted
at the Special Meeting, abstentions and broker non-votes will be treated as
unvoted and will not be counted as votes for or against the proposal.
All Sears Common Shares that are represented at the Special Meeting by
properly executed proxies received before or at the Special Meeting and not
revoked will be voted at the Special Meeting in accordance with the
instructions indicated on such executed proxies. If no instructions are
indicated on the executed proxies, shares represented by such proxies
(including whole shares held for the account of shareholders in the Sears
Dividend Reinvestment and Share Purchase Plan) will be voted FOR approval
of the Distribution Proposal. No business other than the Distribution
Proposal will be considered at the Special Meeting or any adjournment or
postponement thereof.
The holders of record on the Special Meeting Record Date of depositary
shares related to PERCS may instruct First Chicago Trust Company of New
York, the Depositary for the PERCS (the ``Depositary''), as to the exercise
of voting rights pertaining to the PERCS underlying their depositary shares
by completing and returning to the Depositary the enclosed proxy no later
than March 28, 1995. Because of the advance time needed by the Depositary
to tabulate voting instructions and return a proxy to the Company, proxies
received from depositary shares holders after March 28, 1995 may not be
given effect. Any grant of discretionary authority on the proxy will be
taken as a direction to the Depositary to give a discretionary proxy to the
Company's proxy holders. Upon receipt of proxies from the holders of record
on February 21, 1995 of depositary shares, the Depositary will attempt to
the extent possible to vote or cause to be voted in accordance with the
holder's instructions the maximum number of whole PERCS relating to all
depositary shares as to which any particular voting instructions are
received. In the absence of voting instructions from the holder of a
depositary share, the Depositary will abstain from voting (in effect, a
vote against the Distribution Proposal).
Participants in The Savings and Profit Sharing Fund of Sears Employees who
receive this Proxy Statement in their capacity as such participants will be
receiving a voting instruction form in lieu of a proxy.
The persons named in the enclosed form of proxy will not use their
discretionary authority to vote on adjournment of the Special Meeting in
order to solicit further proxies. However, the chairman of the Special
Meeting or the Board may adjourn the Special Meeting, in order to solicit
additional proxies or for any other purpose, without a vote on such
adjournment and without notice other than by announcement at the meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i)
filing with Corporate Election Services, Inc. at or before the Special
Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a subsequent proxy relating to the same Sears
Common Shares and delivering it to Corporate Election Services, Inc. at or
before the Special Meeting, or (iii) attending the Special Meeting and
voting in person (although attendance at the Special Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice
revoking a proxy, and any subsequent proxy, should be sent to Corporate
Election Services, Inc., First & Market Building, 100 First Avenue, Suite
400, Pittsburgh, PA 15222-1507.
In connection with all meetings of shareholders, all proxies, ballots and
vote tabulations that identify the particular vote of a shareholder are
kept confidential, except that disclosure may be made (i) to allow the
independent election inspectors to certify the results of the vote; or (ii)
as necessary to meet applicable legal requirements, including the pursuit
or defense of judicial actions. The tabulator and the inspectors are
independent of the Company, its directors, officers and employees. Comments
written on proxies, consents or ballots, may be transcribed and provided to
the Secretary of the Company with the name and address of the shareholder
without reference to the vote of the shareholder, except where such vote is
included in the comment or disclosure is necessary to understand the
comment. Information concerning which shareholders have not voted and
periodic status reports on the aggregate vote, including break-downs of
vote totals by different types of shareholders, provided that the Company
is not able to determine how a particular shareholder voted, may be made
available to the Company if the Company so requests.
The Company will pay the cost of all proxy solicitation. Officers and other
employees of the Company and its subsidiaries may solicit proxies by
personal interview, telephone and telegram, in addition to the use of the
mails. None of these individuals will receive special compensation for
these services, which will be performed in addition to their regular
duties, and some of them may not necessarily solicit proxies. The Company
has also made arrangements with brokerage firms, banks, nominees and other
fiduciaries to forward proxy solicitation materials for shares held of
record by them to the beneficial owners of such shares. The Company will
reimburse them for reasonable out-of-pocket expenses. D.F. King & Co., Inc.
will assist in the distribution of proxy solicitation materials, collection
of proxies and the solicitation of proxies by personal interview, telephone
and telegram for a fee estimated at $200,000, plus out-of-pocket expenses.
The Company has also agreed to indemnify D.F. King & Co., Inc. against
certain liabilities.
Appraisal Rights
If, under New York law, the Distribution constitutes a sale, lease,
exchange or other disposition of all or substantially all of the assets of
the Company, shareholders of the Company who are entitled to vote and who
fulfill the requirements of Section 623 of the NYBCL will be entitled to
dissent from the Distribution Proposal and receive, instead of the
Distribution, payment for the fair value of their Company shares on the
terms and conditions described below.
The Company does not believe that the Distribution would be a sale, lease,
exchange or other disposition of all or substantially all of the assets of
the Company under New York law and, accordingly, does not believe that
dissenters' rights to payment would arise by reason of the Distribution.
The Company expects to request a court to rule that the Distribution does
not entitle shareholders of the Company to receive payment for their
shares. Moreover, if the holders of more than 1% of the outstanding shares
entitled to vote at the Special Meeting purport to exercise such
dissenters' rights to payment and the Company cannot obtain a ruling by a
court to the effect that no such rights exist, the Company may elect not to
proceed with the Distribution.
If, contrary to the Company's belief, such rights of dissent and payment
are available, Section 910 of the NYBCL sets forth the rights of
shareholders of the Company who object to the Distribution Proposal. Any
shareholder of the Company (including holders of PERCS) who is entitled to
vote and who does not vote in favor of the Distribution Proposal may be
able to obtain payment in cash of the fair value of his or her shares by
complying with the requirements of Section 623 of the NYBCL. The dissenting
shareholder must file with the Company, before shareholders vote on the
Distribution Proposal, a written objection including a notice of election
to dissent, the dissenting shareholder's name and residence address, the
number of Company shares as to which the objection applies and a demand for
payment of the fair value of such shares if the Distribution is effected.
Such objection is not required from any shareholder to whom the Company did
not give proper notice of the meeting pursuant to which such vote was
taken. Within 10 days after the vote of shareholders approving the
Distribution Proposal, the Company must give written notice of such
authorization to each such dissenting shareholder who filed written
objection or from whom written objection was not required and who did not
vote in favor of the Distribution Proposal. Within 20 days after the giving
of such notice, any shareholder from whom written objection was not
required and who elects to dissent from the proposed Distribution must file
with the Company a written notice of such election, stating the dissenting
shareholder's name and residence address, the number of shares of the
Company as to which the notice applies and a demand for payment of the fair
value of such shares. Shareholders may not dissent as to less than all of
their shares and a nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to
which such nominee or fiduciary has a right to dissent, held of record by
such nominee or fiduciary. At the time of filing the notice of election to
dissent or within one month thereafter, the shareholder must submit the
certificates representing the shares to the Company or its transfer agent
for notation thereon of the election to dissent after which such
certificates will be returned to the shareholder. Failure to submit the
certificates for such notation may result in the loss of dissenters'
rights. Within 15 days after the expiration of the period within which
shareholders may file their election to dissent, or within 15 days after
consummation of Distribution, whichever is later (but not later than 90
days after the shareholders' vote authorizing the Distribution Proposal),
the Company must make a written offer (which, if the Distribution has not
been consummated, may be conditioned upon such consummation) to each
shareholder who has filed such notice of election to pay for the Company
shares at a specified price which the Company considers to be their fair
value. The dissenting shareholder has a period of 30 days within which to
accept such written offer. A shareholder may withdraw the notice of
election to dissent at any time before accepting in writing the Company's
offer, but in no case more than 60 days after the later of (x) the date of
the consummation of the Distribution or (y) the date the Company makes its
written offer (as described above). Thereafter, such withdrawal shall
require the written consent of the Company. The Company may request a court
to determine the rights of dissenting shareholders and to fix the fair
value of their Company shares. If the Company does not institute such a
proceeding, the dissenting shareholders may do so.
The foregoing summary does not purport to be a complete statement of the
provisions of Sections 910 and 623 of the NYBCL and is qualified in its
entirety by reference to those Sections, copies of which are attached as
Appendix D hereto.
CERTAIN CONSIDERATIONS
Shareholders should consider the following factors, and those discussed
under ``Certain Factors Affecting The Allstate Corporation'' in the
Allstate Appendix, as well as the other information in this Proxy
Statement.
General Effects of the Distribution
After the Distribution, the Company will no longer own any shares of
Allstate Common Stock and the Company's consolidated financial statements
will no longer reflect the Company's 80.2% interest in Allstate's
shareholders' equity and results of operations. At October 1, 1994, the
Company had total assets of $93.9 billion. After giving effect to the
current assumptions relating to the Distribution, the contemplated
divestiture of Homart at book value and certain other adjustments, all as
if they had occurred on October 1, 1994, the Company would have had total
assets of $30.2 billion on such date. See ``Sears, Roebuck and Co. Pro
Forma Condensed Consolidated Financial Statements.'' In addition, the
dividends paid by Allstate to the Company as an 80.2% shareholder of
Allstate will no longer be available to the Company after the Distribution.
Dividends paid by Allstate to the Company with respect to 1993 and 1994
totalled $329.8 million and $259.6 million, respectively. See
``Relationships Between the Company and Allstate-Business
Relationships-Dividends.'' Conversely, Allstate will no longer have the
Company available as a potential source of capital contributions or
financial support. The Company made no cash contributions to Allstate in
1993, 1994 or 1995 (year to date).
Diversification
The Distribution will reduce the diversification of the Company's current
consolidated operations as the Company will no longer own its 80.2%
interest in Allstate. Although the Distribution will eliminate the
Company's exposure to the trends and risks of the insurance industry, the
Company will remain subject to the trends and risks of the retail and
consumer credit industries (including seasonality). Allstate's businesses
will continue to be subject to the trends and risks of the insurance
industry (including catastrophe losses). See ``The Allstate
Corporation-Certain Factors Affecting The Allstate Corporation'' in the
Allstate Appendix. In addition, after the Distribution, Allstate's losses,
including those resulting from catastrophes, will not be mitigated by
earnings from the Company. On January 17, 1995, Allstate increased its
gross provision for the January, 1994 California earthquake to $1.625
billion from $1.325 billion. See ``1994 California Earthquake'' in the
Allstate Appendix.
Changes in Trading Prices of Sears Common Shares and Allstate Common Stock
The market price of Sears Common Shares and Allstate Common Stock after the
Distribution will be determined by the marketplace. It is expected that the
market price of a Sears Common Share after the Distribution will decline to
reflect the market value of the estimated 0.93 share of Allstate Common
Stock to be received in the Distribution for each Sears Common Share. Based
on the February 21, 1995 closing price of $26-3/8 for Allstate Common
Stock, the amount of such decline is estimated to be approximately $24.50
per Sears Common Share. The market price of Allstate Common Stock after the
Distribution may be influenced by many factors, including, among others,
the market impact of the substantial increase in the number of shares of
Allstate Common Stock available to trade in the market following the
Distribution. See ``The Distribution Proposal-Listing and Trading of Sears
Common Shares'' and ``-Listing and Trading of Allstate Common Stock.''
The trustees or other fiduciaries of the respective trusts under the
tax-qualified profit sharing plans (including employee stock ownership plan
components) of the Company and Allstate will, on behalf of participating
employees, dispose of (i) Allstate Common Stock held in such plan of the
Company and (ii) Sears Common Shares held in such Allstate plan, except to
the extent that employees elect to retain such shares that have been
allocated to their plan accounts. The timing of such dispositions will be
determined by the independent institutional trustees of the Company plan
and the independent institutional investment manager appointed to direct
the independent institutional trustees of the Allstate plan. The Company
cannot predict the timing of such dispositions, but expects that they will
occur during the first several months following the Distribution. Such
dispositions are expected to be effected by exchanges of Sears Common
Shares and Allstate Common Stock between plans, by open-market sales, or
some combination of exchanges and sales. Immediately following the split of
the existing plan of the Company, but prior to the Distribution, the
Company plan and the Allstate plan that results from such split will hold
an estimated 7.6% and 5.0% of the Sears Common Shares outstanding,
respectively. See ``Relationships Between the Company and
Allstate-Agreements Relating to the Distribution-Stock Transfers Between
Qualified Plans.''
Certain Tax Considerations
The Company has conditioned the Distribution on the receipt of a favorable
ruling from the Internal Revenue Service to the effect that, among other
things, the Distribution will qualify as a tax-free spin-off under Section
355 of the Internal Revenue Code of 1986, as amended (the ``Code''). The
Board has reserved the right to waive receipt of the ruling as a condition
to consummation of the Distribution. The Board will not waive such
condition unless, in the Board's judgment, based on an opinion of counsel,
the receipt of shares of Allstate Common Stock will be tax-free. See ``The
Distribution Proposal-Federal Income Tax Aspects of the Distribution.''
Such a ruling, while generally binding upon the Internal Revenue Service,
is subject to certain factual representations and assumptions. If such
factual representations and assumptions were incorrect in a material
respect, such ruling would be jeopardized. The Company is not aware of any
facts or circumstances which would cause such representations and
assumptions to be untrue. The Company and Allstate have agreed to certain
restrictions on their future actions to provide further assurances that the
Distribution will qualify as tax-free. See ``Relationships Between the
Company and Allstate-Agreements Relating to the Distribution-Tax Sharing
Agreement.''
If the Distribution were not to qualify under Section 355 of the Code, then
in general a corporate tax would be payable by the consolidated group, of
which the Company is the common parent, based upon the difference between
(x) the fair market value of the 80.2% of the outstanding Allstate Common
Stock owned by the Company and (y) the adjusted basis of such Allstate
Common Stock. Under certain limited circumstances, Allstate has agreed to
indemnify the Company for such tax liability. See ``Relationships Between
the Company and Allstate-Agreements Relating to the Distribution-Tax
Sharing Agreement.'' In addition, under the consolidated return rules, each
member of the consolidated group (including Allstate) is jointly and
severally liable for such tax liability. Furthermore, if the Distribution
were not to qualify as a tax-free spinoff, each Sears Common Shareholder
receiving shares of Allstate Common Stock in the Distribution would be
treated as if such shareholder had received a taxable distribution in an
amount equal to the fair market value of Allstate Common Stock received,
which would result in (x) a dividend to the extent of such shareholder's
pro rata share of the Company's current and accumulated earnings and
profits, (y) a reduction in such shareholder's basis in Sears Common Shares
to the extent the amount received exceeds such shareholder's share of
earnings and profits and (z) a gain from the exchange of Sears Common
Shares to the extent the amount received exceeds both such shareholder's
share of earnings and profits and such shareholder's basis in Sears Common
Shares.
Loss of Tax Consolidation Benefits
After the Distribution, Allstate and its subsidiaries will no longer be
included in the Company's consolidated tax return. Loss of the tax
consolidation will have a negative impact on Allstate's 1995 net income
that is presently estimated at less than $15,000,000. See ``Relationships
Between the Company and Allstate-Agreements Relating to the
Distribution-Tax Sharing Agreement.'' The actual amount of such negative
impact will depend on the mix and yield of Allstate's investment portfolio
and its underwriting performance.
Dividend Policies
It is currently expected that, following the Distribution, the sum of the
annual dividends to be received by a Sears Common Shareholder who retains
the Allstate Common Stock received in the Distribution will be
approximately $1.64 (as compared to the Company's current annual dividend
rate of $1.60 per Sears Common Share). It is also expected that the Company
will pay approximately $.92 of this amount and that Allstate will continue
to pay dividends at its new annualized rate (effective March 30, 1995) of
$.78 per share of Allstate Common Stock (of which approximately $.72 would
be attributable to the estimated 0.93 share of Allstate Common Stock that
will be distributed for each Sears Common Share in the Distribution). No
such dividends have been declared, however, and the actual amount of such
dividends will remain subject to the discretion of the respective Boards of
Directors of the two companies and will depend on results of operations,
cash requirements, future prospects and other factors.
Relationships Between the Company and Allstate After the Distribution
For purposes of governing certain ongoing relationships between the Company
and Allstate after the Distribution, the Company and Allstate have entered
into or will enter into certain agreements. Such agreements include: (i) a
Separation Agreement, providing for the Distribution; (ii) a Supplemental
Human Resources Allocation Agreement, providing for certain allocations
between the Company and Allstate of responsibilities with respect to
employee compensation, benefit and human resources matters; and (iii) a
Supplemental Tax Sharing Agreement. In addition, the Company currently has,
and after the Distribution will continue to have, various contractual and
other relationships with Allstate and its affiliates. Immediately after the
Distribution, it is expected that the Company and Allstate will continue to
share five common directors: Warren L. Batts, Edward A. Brennan, William E.
LaMothe, Nancy C. Reynolds and Donald H. Rumsfeld. In addition, Mr. James
M. Denny, Vice Chairman and Acting Chief Financial Officer of the Company,
presently serves as a director of Allstate, but expects to resign as a
director following the completion of a transition period after the
Distribution. Such common directors and Mr. Denny may have conflicting
duties due to the ongoing relationships between the companies. The common
directors and Mr. Denny have abstained, and will continue to abstain, from
voting with respect to matters that present a significant conflict of
interest between the companies. Further, the intercompany agreements
described under the caption ``Relationships Between the Company and
Allstate-Agreements Relating to the Distribution'' have been approved by
committees of each company's board of directors consisting exclusively of
persons who are not directors or employees of the other company. See
``Relationships Between the Company and Allstate.''
THE DISTRIBUTION PROPOSAL
Background and Reasons for the Distribution
The Board regularly reviews the structure of the Company to determine if it
continues to be in the best interest of the Company's shareholders. The
proposal to effect the Distribution was discussed by the Board at a meeting
on October 17, 1994. The Distribution Proposal was unanimously approved by
the Board, including the five directors who are also directors of Allstate,
at a meeting on November 9, 1994. At that meeting, the Board, with the
advice of the Company's financial advisors, determined that the
Distribution would be in the best interest of the Company and its
shareholders. The Distribution is intended to increase the long-term value
of the shareholders' investment for the reasons set forth below.
The Distribution is designed to separate two businesses with distinct
financial, investment and operating characteristics. The Board believes
that the Distribution will enable management of each business group to
concentrate its attention and financial resources on its own business group
without regard to the corporate objectives and policies of the other
business group.
The Distribution also will permit the Company and Allstate to offer
incentives that are more appropriate for the recruitment and retention of
their respective employees (including management). By separating Allstate
from the Company, the Company and Allstate will each be able to offer
prospective and current employees stock plans that are tied more directly
to the results of their efforts and unaffected by the performance of the
other company. The Board has concluded that the Company's profit-sharing
plan, employee stock ownership plan (ESOP) and broad-based stock option
program should be more directly dependent upon specific business group
performance to provide incentives consistent with the Company's strategic
goals.
The Board believes that the Distribution will allow investors (including
participants in the Company's employee benefit plans) to evaluate better
the performance and investment characteristics of each business group,
enhancing the likelihood that each will achieve appropriate market
recognition of its performance.
The Board unanimously recommends that shareholders vote FOR the
Distribution Proposal.
Factors Considered by the Board
In reaching a decision to recommend the Distribution Proposal to the
Company's shareholders, the Board considered: (i) the financial condition,
results of operations, business and prospects of the Company and Allstate;
(ii) the economic and competitive environment in which the Company and
Allstate operate and the conditions in the merchandising industry and the
insurance industry, respectively; (iii) the fact that the Distribution will
enable the Company and Allstate to operate as focused, independent
companies; (iv) the fact that the Distribution will improve the ability of
each company to offer stock plans to its employees; (v) the beneficial
effect of the Distribution on investors' ability to evaluate the
performance and investment characteristics of each business group,
enhancing the likelihood that each will achieve appropriate market
recognition of its performance; (vi) the benefits of creating an
opportunity for shareholders (including participants in the Company's
employee benefit plans) to make an investment in the Company's
merchandising business that would be unaffected by the insurance business
and the catastrophic risk and potential earnings volatility related to the
insurance business; (vii) the fact that the Distribution will enable
investors to purchase or sell shares in either of the companies without
affecting their holdings in the other; (viii) the oral and written
presentations of Goldman, Sachs & Co. (``Goldman Sachs'') and Morgan
Stanley & Co. Incorporated (``Morgan Stanley''); (ix) the possible impact
of the Distribution on the credit ratings of the Company and Allstate; (x)
the possible effect of the Distribution on Allstate and its stockholders,
including the benefits of the removal of a control block overhang (the
market uncertainty resulting from ownership of a substantial majority of a
corporation's stock by a single shareholder) and a substantial increase in
market liquidity, as well as the detriments of loss of tax consolidation
with the Company and the loss of Allstate's potential access to the
Company's capital; (xi) the potential risks to completion of the
Distribution; (xii) the terms of the Distribution Proposal; and (xiii) the
intended tax-free nature of the Distribution. In view of the variety of the
factors considered, the Board did not find it practical to, and did not,
quantify or otherwise attempt to attach relative weights to the specific
factors considered.
The Distribution Proposal is being proposed at the present time because the
Board believes that the recent operating performances of the Company and
Allstate, as well as the economic environment, make the timing right. The
Board believes that each of the companies has strong management, good
operating performance and financial strength. In addition, the
relationships that once existed between the two companies have been
significantly reduced as a result of a significant decrease in the number
of Allstate agents located in Company stores and remaining relationships
can continue through intercompany arrangements.
Opinions of Financial Advisors
In reaching a decision to recommend the Distribution Proposal, the Board
considered the advice of the Company's financial advisors, Goldman Sachs
and Morgan Stanley. Goldman Sachs and Morgan Stanley were selected to act
as financial advisors to the Company based on their qualifications,
expertise and reputation, as well as their investment banking relationships
and familiarity with the Company and Allstate. The Board obtained opinions
from both financial advisors because of the importance of the Board's
decision to the Company and its shareholders. As noted in ``The
Distribution Proposal-Background and Reasons for the Distribution'' and
``-Factors Considered by the Board'', the opinions of Goldman Sachs and
Morgan Stanley were among many factors considered by the Board in
determining to approve the Distribution.
A summary of the opinions rendered by Goldman Sachs and Morgan Stanley with
respect to the Distribution is set forth below. The full text of such
opinions, each dated as of the date hereof, which set forth certain
assumptions made, matters considered and limitations on the review
undertaken, are attached as Appendices B and C hereto and are incorporated
herein by reference. Sears shareholders are urged to read such opinions
carefully and in their entirety. The summary of each of the opinions of
Goldman Sachs and Morgan Stanley set forth herein is qualified by reference
to the full texts of such respective opinions. It is a condition to the
consummation of the Distribution that each of Goldman Sachs and Morgan
Stanley deliver opinions to the Board, to be dated as of the date of the
Board's declaration of the special dividend (the ``Declaration Date''), in
substantially the same form as the opinions set forth in Appendices B and
C, respectively (see ``The Distribution Proposal-Conditions;
Termination'').
Each of Goldman Sachs and Morgan Stanley believes that its analysis must be
considered as a whole and that selecting portions of such analyses or any
of the factors considered, without considering all such analyses and
factors, could create an incomplete view of the process underlying its
analyses and opinion. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analysis or summary description.
In performing its analyses, each of Goldman Sachs and Morgan Stanley made
numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
Company's and Allstate's control. The analyses performed by Goldman Sachs
and Morgan Stanley are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable
than suggested by such analyses.
Opinion of Goldman Sachs. Goldman Sachs rendered to the Board its oral
opinion on November 9, 1994, which oral opinion was subsequently confirmed
in writing as of the date of this Proxy Statement, that as of the date
thereof and based upon the matters set forth in such opinion and in light
of the fact that the Distribution will be on a pro rata basis to each Sears
Common Shareholder, it is of the opinion that the Distribution is fair to
Sears Common Shareholders.
In arriving at its opinion, Goldman Sachs conducted discussions with
members of management of the Company and Allstate with respect to the
historical and current businesses and the future prospects of the Company
and Allstate, the anticipated effects of the Distribution on the Company's
and Allstate's initial and projected capital structures, cash flow and
results of operations, and the plans and programs for the financing of
current and projected capital and operating requirements of the Company and
Allstate; analyzed certain historical business and financial information
for the Company and Allstate; reviewed certain projections provided by the
Company and Allstate for the Company and Allstate for 1994 through 1998;
reviewed public information relating to the Company and Allstate including
public financial statements; reviewed certain rating agency presentations;
reviewed public information with respect to certain other companies in
lines of business it believed to be generally comparable to certain of the
businesses conducted by the Company and Allstate; considered the terms of
other recent spin-off transactions; and conducted such other studies,
analyses and investigations as it deemed appropriate.
Goldman Sachs relied upon the accuracy and completeness of the historical
and forecasted financial and other information regarding the Company and
Allstate and their business segments and subsidiaries provided by the
Company and its subsidiaries and did not undertake any independent
verification of any such information. Goldman Sachs assumed and did not
independently verify the reasonableness of the projections provided by
management in connection with its analysis of the Company and Allstate.
Goldman Sachs did not make any appraisals nor was it furnished with
independent appraisals of any of the assets of the Company or Allstate.
Goldman Sachs assumed projections will be realized in amounts shown at
times stated.
No limitations were imposed by the Company, Allstate or the Board upon
Goldman Sachs with respect to the investigations made or the procedures
followed by Goldman Sachs, except that Goldman Sachs was not requested or
authorized to solicit, and did not solicit, any proposals for the
acquisition of stock or assets of Allstate or the Company, nor did Goldman
Sachs make any determination as to whether any such proposals could be
obtained, if solicited.
In connection with the delivery of its opinion, Goldman Sachs discussed
with the Board Goldman Sachs' views of (a) in the case of the Company, the
benefits of creating an opportunity to make an investment in the Company's
merchandising business that would be unaffected by the insurance business
and the catastrophic risk and potential earnings volatility related to the
insurance business; (b) in the case of Allstate, the benefits of removing a
control block overhang, creating a substantial increase in market
liquidity, and the benefits of independent access to equity capital, as
well as the detriments of the loss of tax consolidation with the Company
(with respect to which loss of tax consolidation Goldman Sachs assumed the
accuracy of the Company's expectation that there would be no significant
detriment associated therewith) and loss of access to the Company's
capital; and (c) in the case of both the Company and Allstate, the benefits
to performance of heightened focus, accountability and independence of
management and employees that should result from the Distribution. Goldman
Sachs also noted that the Distribution would result in the reduction in net
assets of the Company by over $8 billion, with a possible risk to the
Company's credit ratings, but that if the Company's credit ratings were
affected they should recover assuming the Company meets its projections.
Goldman Sachs also discussed with the Board (i) Goldman Sachs' view that
the earnings multiple at which the Common Stock of each of the Company and
Allstate was trading and was expected to trade in the future was below the
median of multiples at which comparable retailers and comparable insurance
companies on a stand-alone basis traded (although Goldman Sachs noted that
there are no directly comparable insurance companies) and (ii) Goldman
Sachs' estimation that the earnings multiples at which the Common Stock of
each of the Company and Allstate would trade (after being fully and widely
distributed among investors) over time following the Distribution should
expand assuming that the Company and Allstate accomplish their respective
strategic plans and meet their respective projections. In addition, Goldman
Sachs discussed with the Board the reduction in the scope of distribution
relationships between the Company and Allstate as a result of a significant
decrease in the number of Allstate agents located in Company stores.
Goldman Sachs also generally discussed with the Board the results of
certain studies performed by researchers at two universities and an
independent institutional research firm indicating positive share price
reaction for companies effecting spin-offs versus general market
performance.
Goldman Sachs' opinion addresses only the fairness of the Distribution from
a financial point of view to the holders of Sears Common Shares and
constitutes neither a recommendation to any current or prospective
shareholder of the Company or Allstate as to any voting or investment
decision or other action such person or party may take, nor an opinion or
estimate as to the value or trading price of the Sears Common Shares or the
Allstate Common Stock prior to or following the Distribution.
Goldman Sachs is an internationally recognized investment banking firm that
specializes in providing financial advisory services in connection with
mergers and acquisitions and corporate restructurings.
The Company has paid Goldman Sachs fees in connection with the Distribution
totaling $500,000 and has agreed to pay Goldman Sachs an additional
$750,000 on March 31, 1995 and $3,000,000 upon consummation of the
Distribution. In addition, the Company has agreed, among other things, to
reimburse Goldman Sachs for all reasonable fees and disbursements of
counsel and other reasonable out-of-pocket expenses incurred in connection
with its services. The Company has also agreed to indemnify and hold
harmless Goldman Sachs and certain of its related parties to the fullest
extent lawfully permitted from and against all liabilities, including
certain liabilities under the federal securities laws, in connection with
Goldman Sachs' engagement.
Goldman Sachs acts as a regular outside financial advisor to the Company.
During the past two years, Goldman Sachs has provided a wide range of
financial advisory services and financing services to the Company and
Allstate, including acting as co-manager of the initial public offerings of
Allstate and Dean Witter, Discover & Co. (``DWDC''), and has received fees
of approximately $59 million in connection with such services, excluding
the fees described above in connection with the Distribution. In addition
Goldman Sachs has been retained to represent the Company in connection with
the proposed sale of Homart, in connection with which the Company has
agreed to pay Goldman Sachs a fee of 1/2 of 1% of the aggregate
consideration paid to the Company, including the principal amount of
Homart's debt assumed.
Opinion of Morgan Stanley. Morgan Stanley rendered to the Board its oral
opinion on November 9, 1994, which oral opinion was subsequently confirmed
in writing as of the date of this Proxy Statement, that based upon and
subject to the various considerations set forth in such opinion and as of
the date thereof, the Distribution is fair, from a financial point of view,
to the holders of Sears Common Shares.
In rendering its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information relating to the
Company and Allstate; (ii) analyzed certain internal financial statements
and other financial operating data concerning the Company and Allstate
prepared by their respective managements; (iii) analyzed certain financial
budgets and forecasts prepared by the respective managements of the Company
and Allstate; (iv) compared the financial performance of Allstate with that
of certain other companies with publicly traded securities which Morgan
Stanley deemed to be comparable to Allstate; (v) compared the financial
performance of the Company (excluding Allstate) with that of certain other
companies with publicly traded securities which Morgan Stanley deemed to be
comparable to the Company (excluding Allstate); (vi) discussed past and
current operations and financial condition and the prospects of the Company
with senior executives of the Company and of Allstate with senior
executives of Allstate; (vii) participated in discussions among
representatives of the Company, Allstate and their legal advisors; (viii)
performed such other analyses as Morgan Stanley deemed appropriate; and
(ix) reviewed this Proxy Statement.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the
purpose of its opinion. With respect to the financial budgets and
forecasts, Morgan Stanley assumed that such budgets and forecasts were
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company
and Allstate. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities, contingent or otherwise, of the
Company or Allstate, and Morgan Stanley was not furnished with any such
appraisals.
No limitations were imposed by the Company, Allstate or the Board upon
Morgan Stanley with respect to the investigations made or the procedures
followed by Morgan Stanley, except that Morgan Stanley was not requested or
authorized to solicit, and did not solicit, any proposals for the
acquisition of stock or assets of Allstate, nor did Morgan Stanley make any
determination as to whether any such proposals could be obtained, if
solicited.
In connection with the delivery of its opinion, Morgan Stanley discussed
with the Board, among other things, Morgan Stanley's analysis of the
possible post-Distribution market values of the Sears Common Shares and the
Allstate Common Stock, in each case assuming, among other things, that such
securities are fully and widely distributed among investors and subject
only to normal trading activity (which distribution Morgan Stanley noted
could take a period of time). The analysis was based on a range of
price/earnings multiples and 1994, 1995 and 1996 earnings estimates for the
Company and Allstate. The price/earnings multiples used in the analysis
were compared to the price/earnings multiples of certain publicly-traded
companies which Morgan Stanley deemed comparable to the Company and
Allstate, respectively. The earnings estimates used in the analysis were
compared to certain published analysts' estimates. In connection with the
analysis with respect to Allstate, Morgan Stanley assumed the accuracy of
the Company's expectation that there would be no significant detriment
associated with the loss of Allstate's tax consolidation with the Company.
The analysis generally indicated that, on a post-Distribution basis, based
on the earnings estimates and price/earnings multiples that were considered
most appropriate, the combined implied market value of one Sears Common
Share and the fractional share of Allstate Common Stock reflecting the
Distribution ratio would exceed the closing market price per Sears Common
Share on the day prior to the Board's approval of the Distribution.
Morgan Stanley also discussed with the Board Morgan Stanley's analysis of
selected ``spin-off'' transactions completed since 1988, none of which were
deemed directly comparable to the Distribution. This analysis generally
indicated, among other things, that during the six month periods following
the selected spin-offs, the stock prices of the ``spun-off'' companies
slightly outperformed the S&P 500 average.
In addition, Morgan Stanley discussed with the Board Morgan Stanley's view
of certain potential benefits of the Distribution, including (i) enhanced
focus of the Company's and Allstate's respective management teams; (ii)
reduced volatility of the Company's earnings; and (iii) incentive
compensation structures correlated to the Company and Allstate individually
rather than on a combined basis. Morgan Stanley also discussed with the
Board Morgan Stanley's view of certain potential detriments of the
Distribution, including (i) potential negative reaction of credit rating
agencies; and (ii) potential redistribution of Allstate Common Stock for a
period of time.
Morgan Stanley's opinion addresses only the fairness of the Distribution
from a financial point of view to the holders of Sears Common Shares and
constitutes neither a recommendation to any current or prospective
shareholder of the Company or Allstate as to any voting or investment
decision or other action such person or party may take, nor an opinion or
estimate as to the value or trading price of the Sears Common Shares or the
Allstate Common Stock prior to or following the Distribution.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. In the course of its trading activities, Morgan Stanley may, from
time to time, have a long or short position in, and buy and sell securities
of, the Company and Allstate. Morgan Stanley and its affiliates have
provided financial advisory and financing services to the Company and
Allstate during the past two years, including acting as co-manager of
Allstate's and DWDC's initial public offerings, and have received fees of
approximately $19.5 million in connection with such services.
Pursuant to a letter agreement dated October 21, 1994 between the Company
and Morgan Stanley, the Company has also paid Morgan Stanley $1,000,000 for
its advisory services in connection with the Distribution and has agreed to
pay Morgan Stanley additional fees of $1,000,000 and $2,000,000 upon the
mailing of this Proxy Statement and the consummation of the Distribution,
respectively. The Company has also agreed to reimburse Morgan Stanley for
its reasonable out-of-pocket expenses and to indemnify Morgan Stanley and
its affiliates, their respective directors, officers, agents and employees
and each person, if any, controlling Morgan Stanley or any of its
affiliates, against certain liabilities, including liabilities under
federal securities law, related to Morgan Stanley's engagement.
Manner of Effecting the Distribution
If all conditions to the Distribution Proposal are satisfied (or waived by
the Board), the Distribution will be made on a date (presently expected to
be in mid-1995) to be established by the Board shortly before the
Distribution (the ``Distribution Date'') to Sears Common Shareholders of
record as of the ``Distribution Record Date.'' See ``The Distribution
Proposal-Conditions; Termination.'' The Distribution Record Date will be
established by the Board shortly before the Distribution. On the
Distribution Date, the Company will deliver all 360,500,000 shares of
Allstate Common Stock that it owns to the Distribution Agent. As soon as
practicable thereafter, certificates for such shares will be mailed by the
Distribution Agent to Sears Common Shareholders of record as of the
Distribution Record Date.
No certificates or scrip representing fractional shares of Allstate Common
Stock will be issued to Sears Common Shareholders as part of the
Distribution. The Distribution Agent will, as soon as practicable,
aggregate and sell all fractional interests of Allstate Common Stock on the
NYSE or otherwise at then-prevailing market prices and remit the net
proceeds (after deduction of brokerage fees) to shareholders entitled to
fractional shares. See ``The Distribution Proposal-Federal Income Tax
Aspects of the Distribution''.
Shares of Allstate Common Stock as well as cash from the sale of fractional
share interests will be remitted directly to each participant in the
Company's dividend reinvestment plan based upon the aggregate number of
Sears Common Shares credited to such participant's account under such plan
and any Sears Common Shares registered in such participant's name.
No Sears Common Shareholder will be required to pay any cash or other
consideration for the shares of Allstate Common Stock received in the
Distribution or to surrender or exchange Sears Common Shares in order to
receive shares of Allstate Common Stock. All shares of Allstate Common
Stock received in the Distribution will be fully paid and nonassessable and
the holders thereof will not be entitled to preemptive rights. The
Distribution will not affect the number of outstanding Sears Common Shares.
Determination of the Distribution Ratio
The Distribution will be made to Sears Common Shareholders on the basis of
an estimated 0.93 share of Allstate Common Stock for every Sears Common
Share. The exact fraction of a share of Allstate Common Stock to be
received in the Distribution for each Sears Common Share will equal
360,500,000 (the number of shares of Allstate Common Stock owned by the
Company) divided by the number of Sears Common Shares outstanding on the
Distribution Record Date. Because the number of Sears Common Shares
outstanding is subject to change between the date of this Proxy Statement
and the Distribution Record Date, the 0.93 fraction is only an estimate.
The exact Distribution ratio will be determined by the Company (without the
participation of Goldman Sachs or Morgan Stanley) shortly after the
Distribution Record Date and may be higher or lower than the 0.93 estimate.
The 0.93 estimate is based on the 351,899,360 Sears Common Shares
outstanding on the Special Meeting Record Date, as increased by (i) the
35,672,979 Sears Common Shares to be issued on March 20, 1995 in exchange
for outstanding PERCS (see ``Effect of the Distribution on PERCS'') and
(ii) the number of employee stock options that are exercised through the
mid-1995 anticipated Distribution Record Date, assuming that option
exercises continue at their 1994 rate.
Federal Income Tax Aspects of the Distribution
The Company has conditioned the Distribution on the receipt of a ruling
from the Internal Revenue Service to the effect, among other things, that
the Distribution will qualify as a tax-free spin-off under Section 355 of
the Code for federal income tax purposes and that, for federal income tax
purposes:
(1) No gain or loss will be recognized by (and no amount will be included
in the income of) a Sears Common Shareholder upon the receipt of
Allstate Common Stock in the Distribution, except in connection with
cash received in lieu of fractional shares. A Sears Common Shareholder
who receives cash in lieu of fractional shares as a result of the sale
of such shares by the Distribution Agent will be treated as if such
fractional shares had been received by such shareholder as part of the
Distribution and then sold by such shareholder. Accordingly, such
shareholder will recognize gain or loss equal to the difference
between the cash received and the amount of tax basis allocable (as
described below) to such fractional share. Such gain or loss would be
capital gain or loss if such fractional share would have been held by
such shareholder as a capital asset.
(2) The aggregate basis of Sears Common Shares and Allstate Common Stock
(including fractional shares) in the hands of a Sears Common
Shareholder immediately after the Distribution will be the same as the
aggregate basis of Sears Common Shares held immediately before the
Distribution, allocated in proportion to the fair market value of
each.
(3) The holding period applicable to the Allstate Common Stock received by
a Sears Common Shareholder will include such shareholder's holding
period for the Sears Common Shares with respect to which the
Distribution will be made, provided that such shareholder held the
Sears Common Shares as a capital asset on the Distribution Date.
(4) No gain or loss will be recognized by the Company upon the
Distribution.
Application has been made to the Internal Revenue Service for a ruling to
the foregoing effect. As of the date hereof, the Internal Revenue Service
has not yet issued the ruling requested. The Company believes and has been
advised by its outside tax advisors, Sonnenschein Nath & Rosenthal, that
the positions asserted by the Company in requesting the ruling are
consistent with the Code and the rules and regulations promulgated
thereunder. However, there can be no assurance that the Internal Revenue
Service will issue a favorable ruling. The Board has reserved the right to
waive the receipt of such a ruling as a condition to consummation of the
Distribution. The Board will not waive such condition unless, in the
Board's judgment, based on an opinion of counsel, the receipt of shares of
Allstate Common Stock will be tax-free. See ``The Distribution
Proposal-Conditions; Termination.'' For a description of the consequences
to the Company, its shareholders, and Allstate if the Distribution were not
to qualify as tax-free, see ``Certain Considerations-Certain Tax
Considerations.''
The summary of federal income tax consequences set forth above is for
general reference only and does not purport to cover all federal income tax
consequences that may apply to all categories of shareholders. All
shareholders should consult their own tax advisors regarding the particular
federal, foreign, state and local tax consequences of the Distribution to
such shareholders.
For a description of the Tax Sharing Agreement pursuant to which the
Company and Allstate have provided for various tax matters, see
``Relationships Between the Company and Allstate-Agreements Relating to the
Distribution-Tax Sharing Agreement.''
Listing and Trading of Allstate Common Stock
It is expected that Allstate Common Stock will continue to be listed on the
NYSE and the CSE. The prices at which Allstate Common Stock trades after
the Distribution will be determined by the marketplace and may be
influenced by many factors, including, among others, the market impact of
the substantial increase in the number of shares of Allstate Common Stock
available to trade in the market following the Distribution, investor
perception of the effects on Allstate's future results of operations and
financial condition of the separation of Allstate from the Company,
Allstate's future dividend policy, and general economic and market
conditions. The substantial increase in the number of shares of Allstate
Common Stock which will be available to trade in the public market
following the Distribution could adversely affect the prevailing market
price.
The Company has received a no-action letter from the staff of the
Securities and Exchange Commission (``SEC'') to the effect that the staff
would not recommend enforcement action if the Distribution is effected
without registration of the Allstate Common Stock under the Securities Act
of 1933 (the ``Securities Act''). Shares of Allstate Common Stock
distributed to Sears Common Shareholders in the Distribution will be freely
transferable, except for securities received by persons who may be deemed
to be ``affiliates'' of Allstate within the meaning of Rule 144 promulgated
under the Securities Act. Persons who are affiliates of the Company within
the meaning of Rule 144 may not publicly offer or sell the Allstate Common
Stock received in the Distribution except pursuant to an effective
registration statement under the Securities Act, or pursuant to an
exemption, if any, under the Securities Act.
Listing and Trading of Sears Common Shares
It is expected that Sears Common Shares will continue to be listed and
traded on the NYSE, the CSE and the PSE in the United States and on the
following foreign exchanges: London, England; Basel, Geneva, Lausanne and
Zurich, Switzerland; Amsterdam, The Netherlands; Tokyo, Japan; Paris,
France; and Frankfurt, Germany. It is expected that the market price of a
Sears Common Share after the Distribution will decline to reflect the
market value of the estimated 0.93 share of Allstate Common Stock to be
received in the Distribution for each Sears Common Share. The prices at
which Sears Common Shares trade after the Distribution will be determined
by the marketplace and may be influenced by many factors, including, among
others, investor perception of the effects on the Company's future results
of operations and financial condition of the separation of the Company from
Allstate, the Company's future dividend policy and general economic and
market conditions.
Conditions; Termination
The Board has conditioned the Distribution upon, among other things, (i)
the Internal Revenue Service having issued a ruling in response to the
Company's request, in form and substance satisfactory to the Board (see
``The Distribution Proposal-Federal Income Tax Aspects of the
Distribution''); (ii) the Distribution Proposal having been approved by the
holders of at least two-thirds of the outstanding shares entitled to vote
at the Special Meeting; (iii) any required third-party consents to the
Distribution having been obtained, except for those that, if not obtained,
would not have a material adverse effect on the Company or Allstate; (iv)
each of Goldman Sachs and Morgan Stanley having delivered an opinion to the
Board, dated as of the Declaration Date, in substantially the same form as
the opinions set forth in Appendices B and C, respectively (see ``The
Distribution Proposal-Opinions of Financial Advisors''); (v) compliance
with applicable law; and (vi) holders of not more than 1% of the
outstanding shares entitled to vote at the Special Meeting having purported
to exercise dissenters' rights to appraisal or the Company having obtained
a ruling by a court to the effect that no such rights exist. The Company is
not presently aware of any required third-party consents to the
Distribution. In general, any of these conditions may be waived in the
discretion of the Board. The Company is seeking approval of the
Distribution Proposal by the holders of at least two-thirds of the
outstanding shares entitled to vote at the Special Meeting. However, if the
Distribution Proposal is approved by the holders of less than two-thirds of
the outstanding shares, but is approved by the holders of a majority of the
shares voted at the Special Meeting, the Company may request a court to
rule that shareholder approval of the Distribution Proposal is not required
and consummate the Distribution if a favorable ruling is obtained. Even if
all the above conditions are satisfied, the Board has reserved the right to
abandon or defer the Distribution. See ``Relationships Between the Company
and Allstate-Agreements Relating to the Distribution-Separation
Agreement.''
Effect of the Distribution on PERCS
The Company has given notice to the holders of PERCS depositary shares of
its election to make an optional exchange on March 20, 1995 of Sears Common
Shares for the PERCS on the basis of approximately 1.24 Sears Common Shares
for each PERCS depositary share. The exchange will result in the issuance
of an aggregate of 35,672,979 Sears Common Shares to the holders of PERCS.
Holders of PERCS who continue to hold such Sears Common Shares through the
Distribution Record Date will be entitled to receive the Distribution.
Effect of the Distribution on Employee Stock Options and Restricted Shares
The Distribution will not be made to holders of stock options or restricted
shares under Sears Employees Stock Plans. Pursuant to applicable
antidilution provisions, it is expected that outstanding awards (other than
those held by employees of Allstate) under such plans, and the number of
shares remaining available for future grant (in the form of stock options,
restricted shares, stock appreciation rights, performance units or other
rights to the extent permitted under the provisions of the respective
plans) under such plans, will be adjusted to reflect the dilutive effects
of the Distribution. In addition, it is anticipated that outstanding awards
held by employees of Allstate under such plans will be replaced by
comparable awards relating to Allstate Common Stock under an Allstate
replacement stock plan.
Awards held by Sears Employees. In general, it is expected that the number
of shares subject to each employee stock option (other than those held by
current and former employees of Allstate and its subsidiaries) will be
increased, and the option price decreased, in order to preserve (i) the
aggregate exercise price and (ii) the aggregate difference, or ``spread,''
between the fair market value of the shares subject to the option and the
option exercise price. Restricted shares (other than those held by
employees of Allstate and its subsidiaries) will be cancelled before the
Distribution Record Date and the former holders will be granted restricted
Sears Common Shares having an aggregate fair market value after the
Distribution equal to the fair market value of the cancelled shares before
the Distribution.
Awards Held by Allstate Employees. In general, it is expected that all
Sears options and restricted Sears Common Shares held by current and former
employees of Allstate and its subsidiaries will be cancelled prior to the
Distribution and, to the extent authority to make grants under the
applicable Employees Stock Plan has not expired, the related Sears Common
Shares will be available (on a basis adjusted to reflect the dilutive
effects of the Distribution) for future grant under the plans. It is also
expected that before the Distribution Allstate will adopt, subject to
approval of Allstate stockholders, a replacement stock plan under which the
holders of such cancelled awards will be granted substantially similar
awards relating to Allstate Common Stock. Sears intends to vote its 80.2%
interest in the outstanding Allstate Common Stock for approval of such
replacement employees stock plan, thereby assuring such approval.
As of December 31, 1994, there were outstanding employee stock options to
purchase 11,523,440 Sears Common Shares (of which options to purchase
1,129,424 shares were held by employees of Allstate and its subsidiaries)
and 362,980 restricted shares (of which 103,199 shares were held by
employees of Allstate and its subsidiaries), and 8,854,454 shares were
available for future grant under the Sears Employees Stock Plans.
Agreements with Executive Officers
In anticipation of the elimination of the Sears Corporate Group, the
Company has adopted a retention policy that provides varying levels of
severance benefits for all employees of the Sears Corporate Group following
the Distribution. In the cases of Messrs. James A. Blanda (Vice President
and Controller) and Gerald E. Buldak (Vice President, Public Affairs) and
Ms. Alice M. Peterson (Vice President and Treasurer), such policy provides
for severance payments in the event of (x) a termination of employment
without cause, (y) an elimination of such officer's position as part of the
Distribution and such officer does not receive an offer of comparable
employment from the Company or Allstate, or (z) a significant reduction
during the period ending on the first anniversary of the Distribution in
the compensation or responsibilities of such officer on November 10, 1994
(a ``deemed termination''). The amount payable to such officers under such
circumstances would equal one year's salary and target annual bonus. In
addition, each such officer would receive up to one year's additional
salary and target annual bonus, payable on a monthly basis during the
second year following the date of the actual or deemed termination, but
only so long as such officer has not obtained new employment. Mr. Shute
(Senior Vice President, General Counsel and Secretary) is expected to
retire from the Company on his normal retirement date in February, 1996.
The retention policy does not apply to Messrs. Edward A. Brennan (Chairman
of the Board of Directors, President and Chief Executive Officer) and James
M. Denny (Vice Chairman and Acting Chief Financial Officer).
The Compensation Committee of the Board has deferred a determination as to
any special compensation for Messrs. Brennan and Denny until shortly before
the Distribution. This will enable the Compensation Committee to take into
account their contributions to the management of the Company, including the
process leading to the Distribution. The Distribution will result in the
elimination of the positions of Messrs. Brennan and Denny following a
transition period after the Distribution.
Regulatory Approvals
The Company does not believe that any material federal or state regulatory
approvals will be necessary in connection with the Distribution. However,
any person who directly or indirectly owns 5% or more of the shares of
Allstate Common Stock may need to obtain the approval of insurance
regulators in certain states. See "Comparison of Rights of Shareholders of
the Company and Allstate-Insurance Regulations Concerning Change or
Acquisition of Control".
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the ``HSR Act''), and the rules promulgated thereunder, the distribution
of Allstate Common Stock to certain persons pursuant to the Distribution
may require the Company and any such persons to file a Premerger
Notification and Report Form (a ``Report Form'') with the Department of
Justice and the Federal Trade Commission and be subject to the expiration
or early termination of a specified waiting period. The waiting period
under the HSR Act will expire 30 days after such filings are made, subject
to extension if additional information is required by the government
agencies.
In general, if (i) a person receiving shares of Allstate Common Stock
pursuant to the Distribution would own, upon consummation of the
Distribution, Allstate Common Stock that exceeds $15 million in value, (ii)
certain jurisdictional requirements are met and (iii) no exemption applies,
then the HSR Act would require that the Company and such person file a
Report Form and observe the applicable waiting period. If such waiting
period has not expired or been terminated by the Distribution Date with
respect to any such recipient, the Company may be required to deliver such
recipient's shares of Allstate Common Stock into an escrow facility pending
the expiration or termination of such waiting period.
Exemptions from the requirements of the HSR Act that may be available to
persons who receive shares of Allstate Common Stock that exceed $15 million
in value include: (i) an exemption for acquisition of voting securities
made solely for the purpose of investment if, after the acquisition, the
acquiring person would hold 10% or less of the outstanding voting
securities of the issuer, regardless of the dollar value of voting
securities so acquired or held; and (ii) an exemption for the acquisition
of voting securities if (a) the securities are acquired by a trust that
meets the qualifications of section 401 of the Code, (b) the trust is
controlled by a person that employs the beneficiaries, and (c) the voting
securities acquired are those of that person or an entity within that
person. Shareholders are urged to consult their legal counsel to determine
whether the requirements of the HSR Act will apply to their receipt of
Allstate Common Stock pursuant to the Distribution.
Accounting Treatment
If the shareholders of the Company approve the Distribution Proposal at the
Special Meeting, the Company will thereafter present the business of
Allstate and its subsidiaries as a discontinued operation to the extent
financial information for periods prior to the Distribution is required to
be included in the Company's historical financial statements. After the
Distribution, the business of Allstate and its subsidiaries will continue
to be reflected in the separate consolidated financial statements of
Allstate.
RELATIONSHIPS BETWEEN THE COMPANY AND ALLSTATE
The Company currently has, and after the Distribution will continue to
have, a variety of contractual and other relationships with Allstate and
its affiliates. In addition, the Company and Allstate have entered into, or
will enter into, other arrangements to facilitate the Distribution. A
description of these existing relationships and contemplated arrangements
follows below.
Business Relationships
Assumption of Debt. On March 8, 1993, pursuant to an agreement between
Allstate Holdings, Inc., a wholly-owned subsidiary of the Company
(``Allstate Holdings''), and Allstate, Allstate Holdings contributed to
Allstate all of the outstanding stock of Allstate Insurance Company
(``AIC''), and Allstate assumed payment liabilities with respect to $1.8
billion aggregate principal amount of indebtedness of the Company, which
Allstate Holdings had assumed by agreement with the Company. All of such
indebtedness has been paid by Allstate.
Intercompany Agreement. Before June 2, 1993, Allstate was an indirect
wholly-owned subsidiary of the Company. Allstate sold approximately 19.9%
of its common stock to the public in an initial public offering (the
``Allstate IPO'') on June 2, 1993. In connection with the Allstate IPO, the
Company and Allstate entered into an agreement dated as of May 29, 1993
(the ``Intercompany Agreement'') setting forth certain agreements and
undertakings between them concerning the Allstate IPO and their
relationship following the Allstate IPO. The Intercompany Agreement
contains, among other provisions, cross-indemnities relating to the
Allstate IPO, and provisions relating to certain relationships between the
Company and Allstate following the Allstate IPO, such as the responsibility
of each party for the conduct of its business. The Intercompany Agreement
also contains provisions for the protection of confidential information,
access to information and retention of records. The Intercompany Agreement
will survive the consummation of the Distribution.
Dividends. Dividends paid by Allstate to the Company with respect to 1992,
1993 and 1994 totaled $201.8, $329.8 million and $259.6 million,
respectively. The Company will continue to receive any dividends declared
by Allstate with respect to Allstate Common Stock as to which the record
date is prior to the Distribution Date.
Demand Collateral Note. Pursuant to a Demand Collateral Note dated as of
December 20, 1990, the Company agreed to pay on demand, on or before
December 29, 1995, to AIC the principal sum of $450 million, together with
accrued but unpaid interest thereon. The interest on the principal sum is
at the rate of 9% per annum payable semi-annually commencing as of June 15,
1991. To secure payment of such note, the Company has granted a security
interest to AIC in all of the outstanding shares of common stock of Homart.
The Company intends to repay the Demand Collateral Note in full before the
Distribution Date.
Advantis Agreements. As of November 30, 1992, AIC entered into a Master
Agreement for Systems Operations Service and a related Services Agreement
(collectively, the ``Advantis Agreement'') with Advantis, a New York
general partnership (the general partners of which are an affiliate of
International Business Machines Corporation (``IBM'') and an affiliate of
the Company), covering the provision to AIC of the data networking, voice
and related services (collectively, the ``Services'') formerly provided to
AIC by Sears Technology Services, Inc. (``STS''), a subsidiary of the
Company. The Advantis Agreement sets forth the terms and conditions for the
Services that are to be performed by Advantis for AIC. As of January 1,
1995, AIC's aggregate minimum annual revenue commitment under the Advantis
Agreement is approximately $109.1 million, subject to a cost-of-living
adjustment mechanism.
The term of the Advantis Agreement commenced on December 1, 1992, and
terminates, unless earlier terminated or extended, on December 31, 1996.
Such term may be renewed by mutual agreement of AIC and Advantis for an
additional four-year period and then an additional two-year period beyond
the original term and the renewal term, respectively. Under certain
circumstances, early termination requires the payment to Advantis of an
early termination charge.
Under separate agreements with the affiliate of the Company that is a
partner in Advantis, AIC has an interest, currently approximately 3.2%, in
the operating results and distributions of Advantis, which portion varies
on the basis of the fees paid to Advantis by AIC, the Company and certain
other customers of Advantis (the ``Profits Interest''). In addition, the
Company has agreed to pay to AIC an amount, based upon the proceeds
received by the Company affiliate, upon the sale or liquidation of its
interest in Advantis or as a result of the sale of certain capital assets
by Advantis or from certain other distributions by Advantis (the ``Capital
Events Interest''). Such amount would equal 15.8% (subject to reduction
under certain circumstances) of any cash proceeds realized by the Company
affiliate on account of its interest in Advantis. Allstate's rights to
receive payments under the Profits Interest and the Capital Events Interest
expire upon certain circumstances, including the expiration or termination
of the Advantis Agreement (except that the Capital Events Interest
continues if the termination occurs on or after December 31, 2002) or if
the Company affiliate ceases to be a partner of Advantis.
As of the date of this Proxy Statement, AIC, Sears and Advantis are engaged
in negotiations relating to certain terms of the Advantis Agreement.
Household Marketing File. To coordinate their cross-business marketing
efforts, in 1988, Allstate, the Company and its other affiliates
established the Corporate Household Marketing File (the ``Household
File''). Allstate and the Company send certain customer files to Allstate's
Menlo Park, California-based Research Center on a regular basis for input
into the Household File. On a request basis, the Allstate Research Center
provides certain research services to the Company at cost and provides data
extracts to the Company, Allstate and other affiliates to support marketing
programs. These arrangements are being modified by the Marketing File
Separation Agreement and the Research Services Agreement described below.
Other Relationships. Other less significant relationships include: (i)
Allstate's leasing of space in certain Sears stores, (ii) Allstate's
provision of credit life and other insurance coverage to holders of the
SearsCharge Card; (iii) various marketing assistance programs, including
customer referrals and product promotions; (iv) claimant referral programs
under which Allstate affiliates refer customers to the Company and certain
of its affiliates for replacement or repair of damaged property; and (v)
various general administrative service agreements. Allstate affiliates also
sell certain products, such as structured settlement annuities, to the
Company and its affiliates. Modifications of certain of these relationships
are described under ``Agreements Relating to the Distribution'' below.
Agreements Relating to the Distribution
In contemplation of the proposed Distribution, the Company and Allstate
have entered into certain new and amended arrangements. The agreements
summarized in this section are included as exhibits to Allstate's Current
Report on Form 8-K relating to the Distribution that is being filed with
the SEC concurrently with the mailing of this Proxy Statement. The
following summaries are qualified in their entirety by reference to the
agreements as filed.
Separation Agreement. The Company and Allstate have entered into the
Separation Agreement, which provides for, among other things: (i) the
Distribution; and (ii) certain other agreements governing the relationship
between the Company and Allstate following the Distribution as described
below.
The Separation Agreement restricts competition between the Company and
Allstate during the five years following the Distribution, providing that
during that period (i) the Company cannot engage in insurance or related
businesses in which it was not engaged on January 1, 1995, if Allstate was
then so engaged; and (ii) Allstate cannot engage in the home or product
service or home warranty businesses (except for motor vehicle and
commercial insurance consulting businesses in which Allstate was engaged at
January 1, 1995 and for satisfaction of insurance claims), and cannot, if
the Company was so engaged on January 1, 1995, (x) engage in a consumer
finance business if Allstate was not so engaged on January 1, 1995, (y)
issue credit cards (except as described in the next sentence), and (z) sell
consumer products (except insurance and financial products) at retail.
Allstate may, however, elect to issue credit cards at any time commencing
42 months after the Distribution Date, provided that Allstate so notifies
the Company and deletes from the Household File all credit account
information relating to the Company's customers. In the event of such an
election by Allstate, all restrictions on competition between the Company
and Allstate will terminate.
The provisions of the Separation Agreement also include the following: (w)
each party will indemnify the other in the event of certain liabilities
relating to the Distribution arising under the Securities Exchange Act of
1934 (the ``Exchange Act'') or otherwise, (x) the discount privileges of
Allstate employees and retirees in Sears stores will be terminated as of
the Distribution Date, (y) Allstate's leased space in Sears stores will be
gradually reduced until its elimination by the second anniversary of the
Distribution Date, and (z) expenses related to the Distribution will
generally be borne by the Company, except that such expenses not
specifically addressed will be charged to the party for whose benefit the
expenses are incurred.
Marketing File Separation Agreement. The Marketing File Separation
Agreement (the ``MFSA'') provides that, until December 31, 1995, the
Company will continue to provide Allstate's Household File with the
Company's customer information. Allstate will retain the Household File,
but credit account and other customer information furnished by the Company
before that time will be retained by Allstate only until the fifth
anniversary of the Distribution Date or, if Allstate exercises its election
to enter the credit card business (see ``Separation Agreement'' above),
until the time of such election. See ``Business Relationships-Household
Marketing File.'' The MFSA limits the frequency with which Allstate can
contact customers of the Company during the five years following the
Distribution Date and provides that Allstate cannot conduct certain direct
response insurance or auto club marketing using the Company's customer
information, except pursuant to existing or future agreements with the
Company. The Agreement also provides for an Allstate payment to the Company
of $1,000,000, and cross-indemnities for losses suffered by one party
caused by the other party's breach of the Agreement.
Research Services Agreement. Under the Research Services Agreement between
the Company and Allstate, the Allstate Research Center will provide credit
related research services to the Company, at the Company's request,
beginning on the Distribution Date, for fees based on the current agreement
until December 31, 1995 and at commercially reasonable rates thereafter.
The Agreement provides that the Company indemnifies Allstate for (i) any
liability arising out of implementation of models and programs under the
Agreement and (ii) any liability related to the Company's use of research
produced under the Agreement. In addition, the Agreement provides that
Allstate will indemnify the Company for (i) actual damages arising from
failure of credit scoring models produced under the Agreement to comply
with certain requirements of Federal Reserve Board Regulation B, and (ii)
any liability arising from violation of proprietary rights of third parties
by research produced under the Agreement.
Tax Sharing Agreement. After the Distribution, Allstate will no longer be a
member of the Company's affiliated group (the ``Sears Group''), which files
a consolidated federal income tax return. The Company and Allstate have
entered into an agreement (the ``Tax Sharing Agreement'') which (i) defines
their respective rights and obligations with respect to federal, state,
local and all other taxes for all periods prior to or including the
Distribution (``Consolidated Taxable Years'') and (ii) governs the conduct
of all audits and other tax controversies relating to the Consolidated
Taxable Years. As a member of Sears Group during Consolidated Taxable
Years, Allstate is jointly and severally liable for the consolidated income
tax liability of the Sears Group.
The Tax Sharing Agreement provides that all Consolidated Taxable Years will
continue to be governed by the existing tax agreement of the Sears Group
(the ``Existing Agreement''). Pursuant to the Existing Agreement and
practices thereunder, each Sears Group member (including Allstate, with the
Allstate Life Group treated as a separate member) is responsible for its
share of Sears Group federal income taxes for Consolidated Taxable Years.
Each Sears Group member (including Allstate, with the Allstate Life Group
treated as a separate member) is allocated a share of such taxes as
determined under an elective method permitted under the Treasury
Department's consolidated return regulations. In general, this method
provides for an allocation of taxes to each member as if it filed a
separate return, except that items such as net operating losses, capital
losses, foreign tax credits, general business credits or similar items
which might not be immediately recognizable in a separate return are
allocated to the extent such items reduce the Sears Group consolidated tax
liability. Similarly, alternative minimum tax (``AMT'') incurred by the
Sears Group is allocated to members of the Sears Group whose tax position
caused the AMT. If new Treasury Regulations are issued which provide for an
allocation of the Sears Group's federal tax liability or loss or credit
carryforwards (including the allocation of AMT and minimum tax credit) to a
member of the Sears Group (including Allstate, with the Allstate Life Group
treated as a separate member) which differs from the methods of allocation
provided under the Existing Agreement, the new Regulations shall apply. To
the extent that the Company or Allstate is allocated any minimum tax credit
which does not correspond to an allocation of AMT provided under the
Existing Agreement, the party receiving the benefit of such allocation is
required to pay to the other an amount equal to the amount of such credit
on or before certain prescribed dates set out in the Tax Sharing Agreement
which are based on the utilization of such credit. If new Regulations are
issued which provide for alternative allocation methods, the Company will
continue to allocate AMT and minimum tax credits under the Existing
Agreement or adopt an allowable allocation method advantageous to the
Consolidated Group.
The Tax Sharing Agreement confirms that Allstate has fully paid its
reported tax liability under the Existing Agreement for all years ending on
or before December 31, 1993. Nevertheless, (i) Allstate will be required to
pay (to the extent not already paid) to the Company its share of federal
income taxes attributable to all Consolidated Taxable Years ending before
or including the Distribution Date, (ii) Allstate may be required to pay
additional taxes to the Company to the extent federal income tax liability
allocable to Allstate for any Consolidated Taxable Year is increased after
audit, and (iii) Allstate will be entitled to receive tax refunds (if any)
or may be entitled to receive additional payments (if any) to the extent a
refund or an audit adjustment to a Consolidated Taxable Year is allocable
to Allstate. Similar provisions apply under the Tax Sharing Agreement to
other taxes, such as state and local income taxes (which are not covered by
the Existing Agreement), with respect to jurisdictions in which a member of
Allstate's affiliated group is required to be included in a combined return
with a member of the Sears Group, for periods ending prior to or including
the Distribution Date.
Under the Existing Agreement, each Sears Group member (including Allstate,
with the Allstate Life Group treated as a separate member) may be (i)
required to pay a member if such member's losses, tax credits or certain
other items could potentially create a tax benefit for the Sears Group, and
(ii) entitled to receive an amount from other members if its own losses,
tax credits or certain other items could potentially create a tax benefit
for the Sears Group. Effectively, under these provisions Allstate generally
is allocated an amount of federal income tax no greater than the amount for
which it would have been liable had it filed its return separately from the
Sears Group.
The Company and Allstate will be responsible for their respective federal
income tax liabilities and those of their subsidiaries for all periods
after the Distribution Date. The Company and Allstate will remain
responsible for their separate state and local income tax liabilities and
for those of their subsidiaries.
Allstate has indemnified the Company in the Tax Sharing Agreement with
respect to tax liabilities resulting from (i) Allstate's failure to comply
in all material respects with certain written representations and
statements made regarding it in the IRS ruling request (and related
submissions) relating to the tax-free nature of the Distribution, or (ii)
certain errors or omissions contained in the ruling request, insofar as any
such error or omission was made based on written statements that Allstate
has furnished to the Company in connection with the ruling request. In
addition, Allstate has agreed to refrain from certain actions for the
two-year period beginning on the Distribution Date, unless it obtains an
opinion of counsel or a supplemental ruling from the IRS (which, in either
case, shall be reasonably satisfactory to the Company) that such actions
will not affect the qualification of the Distribution as a tax-free
distribution under Section 355 of the Code. These actions include (i) a
material disposition outside of Allstate's affiliated group, by means of
sale or exchange of assets or capital stock (other than an offering of
Allstate's own stock in an amount which does not exceed 50 percent of
Allstate's issued and outstanding stock), (ii) a distribution to
stockholders or otherwise of any of its assets (other than ordinary
dividends), (iii) a repurchase of any Allstate stock (excluding certain
repurchases in connection with employee benefit plans) and (iv) voluntarily
ceasing the active conduct of a material portion of its business.
The Tax Sharing Agreement provides that Allstate shall have the right,
subject to the Company's approval (which may not be unreasonably withheld)
to have full responsibility and discretion in the handling of any tax
controversy including an audit, protest to the Appeals Division of the IRS,
and litigation in Tax Court or any other court of competent jurisdiction,
with respect to any item reported on an Allstate tax return that would give
rise to a payment of tax for which Allstate would be liable (or a refund of
tax to which Allstate would be entitled) under the Tax Sharing Agreement.
Human Resources Allocation Agreement. At the time of the Allstate IPO,
Allstate, AIC and the Company entered into a Human Resources Allocation
Agreement regarding the parties' employees, agents, employee benefits and
related matters. The agreement generally preserved the parties' existing
relationships with respect to these matters, while reserving the right to
change them. In contemplation of the proposed Distribution, the Company and
Allstate have amended the Human Resources Allocation Agreement to provide
that (i) after the Distribution, the Company, Allstate and their respective
affiliates will operate and maintain separate employee benefit programs and
procedures; (ii) subject to certain exceptions, Sears and Allstate retain
or assume any and all liabilities under various employee benefit plans and
arrangements with respect to any person who, as of the time such liability
was incurred, was an employee of Sears or Allstate, respectively; (iii)
Allstate will adopt, and the Company as majority shareholder prior to the
Distribution agrees to approve The Allstate Corporation Employees
Replacement Stock Plan, under which Allstate will have the authority to
grant awards, including nonqualified stock options and various forms of
stock appreciation rights (including limited stock appreciation rights)
relating to Allstate Common Stock, and shares of restricted Allstate Common
Stock, solely in order to replace substantially similar awards relating to
Sears Common Shares terminated, cancelled or forfeited in connection with
the Distribution; (iv) The Savings and Profit Sharing Fund of Sears
Employees (the ``Sears Profit Sharing Fund'') will be split up and
procedures established in accordance with applicable fiduciary standards
and securities laws, for the transfer of Company and Allstate stock between
the resulting plans of the Company and Allstate, as described under ``Stock
Transfers Between Qualified Plans'' below; and (v) Allstate will assume the
obligation to provide the benefits under certain other plans to Allstate
employees.
Stock Transfers Between Qualified Plans. The Sears Profit Sharing Fund has
been in effect since 1916 and is a tax-qualified profit sharing, stock
bonus and 401(k) plan covering all eligible employees of the Company and
its affiliates (including Allstate). The Sears Profit Sharing Fund also
contains a leveraged employee stock ownership plan (``ESOP'') feature. The
Sears Profit Sharing Fund as of February 6, 1995, held 48,968,779 Sears
Common Shares (approximately 13.9% of the Sears Common Shares then
outstanding).
The leveraged ESOP is liable on a 15-year note bearing interest at an
annual rate of 9.2% to the Company made in 1989 in the original principal
amount of $800 million, of which approximately $655 million remains unpaid
as of the date of this Proxy Statement. The proceeds of the loan were used
to purchase 21.9 million Sears Common Shares (increased to 27.2 million
shares as a result of the sale of the stock of DWDC received in the
Company's spinoff of DWDC in 1993, and the subsequent reinvestment of the
proceeds in Sears Common Shares). Payment of the loan is made with employer
contributions and cash dividends paid on shares acquired by the leveraged
ESOP (including, at the election of the Company, dividends paid on shares
allocated to participants' accounts). The shares acquired with the loan
proceeds are released to plan participants' accounts as principal and
interest on the loan is repaid. As of February 6, 1995, 19,624,336 Sears
Common Shares (approximately 5.6% of the Sears Common Shares then
outstanding) remained unallocated.
Effective as of the first day of the month following the approval by the
Board of the plan split described below, the Sears Profit Sharing Fund will
be split into two separate plans: (a) a plan with profit sharing, stock
bonus, 401(k) and leveraged ESOP components for employees of the Company
and its affiliates other than Allstate and its affiliates (``Company
employees''), and (b) a substantially identical plan for employees of
Allstate and its affiliates (``Allstate employees'').
Existing account balances of current and former Allstate employees,
including all the Sears Common Shares acquired by the leveraged ESOP that
have been allocated to the accounts of current and former Allstate
employees, will be transferred to the Allstate plan, together with 50% of
the principal amount of the debt obligation and 50% of the unallocated
Sears Common Shares in the leveraged ESOP. The remainder of the debt
obligation and the unallocated Sears Common Shares, together with existing
account balances of current and former Company employees and the Sears
Common Shares acquired by the leveraged ESOP that have been allocated to
the accounts of current and former Company employees will remain in the
Sears Profit Sharing Fund. Immediately following the plan split, the Sears
Profit Sharing Fund and the Allstate plan will hold an estimated 7.6% and
5.0%, respectively, of the Sears Common Shares outstanding (after giving
effect to the exchange of all outstanding PERCS on March 20, 1995 (see "The
Distribution Proposal-Effect of the Distribution on PERCS")).
Effective as of the date of the plan split, Allstate will assume the
obligation to make contributions to the ESOP portion of the Allstate plan
annually in the amount that, together with dividends on employer securities
held in the ESOP available for such purpose, is necessary to allow the
Allstate plan to make payments on the portion of the ESOP loan transferred
to the Allstate plan. In addition, Allstate has agreed to assume the
obligations of the Company under the ESOP portion of the plan. Allstate has
also agreed to indemnify the Company for any liability of the Company, from
and after the date of such plan split, with respect to the portion of the
ESOP and the ESOP loan assumed by the Allstate plan, to the extent that
such liability relates to the obligation of the Company under the
settlement agreement in Larkin v. The Savings and Profit Sharing Fund of
Sears Employees et al. to refrain from seeking payment by the ESOP under
the ESOP loan except to the extent that employer contributions, together
with dividends on employer securities held in the ESOP available for such
purpose, are sufficient to allow the ESOP to make timely payments of
amounts due under the ESOP loan. The Company has agreed to cross-indemnify
Allstate and its affiliates with respect to the portion of the ESOP and the
ESOP loan retained by the Company. In connection with the split of the
leveraged ESOP, Allstate has agreed to purchase from the Company the
portion of the ESOP note representing 50% of the ESOP loan outstanding as
of the date of the plan split and which will be assumed by the Allstate
plan (the ``Allstate ESOP Note'') (presently expected to be approximately
$327 million). The purchase price will be equal to the principal amount of,
and accrued interest on, the Allstate ESOP Note. Payment will be made in
the form of a promissory note, with quarterly interest payments at the same
rate as under the Allstate ESOP Note, and payable in full on the earlier of
the Distribution Date or one year after the date of the plan split.
At the Distribution, each of the plans will receive a distribution of
Allstate Common Stock on the same basis as other Sears Common Shareholders.
For ERISA regulatory reasons, the unallocated collateral stock in each of
the leveraged ESOPs must be reinvested exclusively in the stock of the
respective post-spinoff employer. Accordingly, it is contemplated that the
non-employer shares held in the post-spinoff unallocated leveraged ESOP
collateral accounts will be exchanged or sold in the open market or in
private transactions and the proceeds invested in employer stock with
respect to each respective plan. In view of the desire of the Company and
Allstate to focus the attention of their respective employees on the
performance of their employer, it is also contemplated that shares of
non-employer stock allocated to participants' accounts (including the
allocated leveraged ESOP shares) will be exchanged or sold in the open
market or in private transactions and the proceeds invested in employer
stock, except to the extent that a participant elects to retain nonemployer
stock in his or her own accounts. Thus, within a reasonable time following
the Distribution, it is expected that (1) the Sears Profit Sharing Fund
(including the ESOP) will dispose of Allstate Common Stock and (2) the new
Allstate profit sharing plan (including the Allstate ESOP) will dispose of
Sears Common Shares (except in each case to the extent that participants
elect otherwise with respect to their own accounts) and use the proceeds to
acquire employer stock.
Common Directors
Five of the 10 current directors of the Company are also serving, and may
continue to serve for an indefinite period of time after the Distribution,
as directors of Allstate. In addition, Mr. James M. Denny, Vice Chairman
and Acting Chief Financial Officer of the Company, presently serves as a
director of Allstate, but expects to resign as a director following the
completion of a transition period after the Distribution. After the
Distribution, the Company and Allstate also will have certain contractual
and other ongoing relationships, as described above. Such ongoing
relationships may present certain conflict situations for such persons.
Certain officers and directors of the Company and Allstate will also own
(or have options to acquire) a significant number of shares of common stock
in both companies. See ``Stock Ownership Information.'' The common
directors and Mr. Denny have abstained, and will continue to abstain, from
voting with respect to matters that present a significant conflict of
interest between the companies. Further, the intercompany agreements
described under the caption ``Relationships Between the Company and
Allstate-Agreements Relating to the Distribution'' have been approved by
committees of each company's board of directors consisting exclusively of
persons who are not directors or employees of the other company.
SEARS, ROEBUCK AND CO.
HISTORICAL SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary consolidated financial
information of the Company for the year-to-date periods ended October 1,
1994 and September 30, 1993 and the five years ended December 31, 1993. The
summary information has been derived from and should be read in conjunction
with the financial statements and financial statement schedules included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1993 and Quarterly Report on Form 10-Q for the quarterly period ended
October 1, 1994, both of which are incorporated herein by reference.
Discontinued operations include the operating results and financial
position of Dean Witter, Discover & Co. and Coldwell Banker's residential
services businesses and commercial division.
Year-To-Date Through Year Ended December 31,
Oct. 1, Sept. 30,
1994 1993 1993 1992 1991 1990 1989
(millions, except per common share data)
Operating results
Revenues $38,480 $36,174 $50,838 $52,345 $50,983 $50,283 $48,466
Cost and expenses 36,523 33,592 47,234 52,479 48,568 48,069 45,383
Restructuring - - - 3,108 - 265 -
Interest 1,090 1,147 1,498 1,511 1,681 1,746 1,634
Funding cost on
securitized
receivables 292 432 553 667 655 440 217
Total funding
costs 1,382 1,579 2,051 2,178 2,336 2,186 1,851
Operating income
(loss) 867 1,435 2,106 (4,753) 734 203 1,449
Other income 84 685 852 54 139 153 139
Income (loss) be-
fore income taxes
(benefit) and
minority interest 951 2,120 2,958 (4,699) 873 356 1,588
Income taxes (benefit)
Current
operations 117 171 401 (2,114) (38) (228) 234
Fresh start
adjustment - - - - - (139) -
Income (loss) from
continuing
operations 769 1,865 2,409 (2,567) 916 713 1,311
Income from dis-
continued
operations - 176 176 508 363 189 198
Extraordinary loss - (211) (211) - - - -
Cumulative effect of
accounting changes - - - (1,873) - - -
Net income (loss) 769 1,830 2,374 (3,932) 1,279 902 1,509
Earnings (loss) per
common share
Income (loss)
from continuing
operations 1.92 4.82 6.22 (7.02) 2.65 2.08 3.74
Net income
(loss) 1.92 4.73 6.13 (10.72) 3.71 2.63 4.30
Cash dividends
declared per
common share 1.20 1.20 1.60 2.00 2.00 2.00 2.00
Financial position
Investments $48,904 $46,419 $49,726 $42,176 $39,824 $33,746 $28,901
Receivables 20,940 18,365 20,168 18,254 16,814 18,339 18,483
Merchandise
inventories 4,505 3,793 3,518 4,048 4,459 4,074 4,358
Property and
equipment, net 5,684 5,298 5,529 5,483 5,842 5,484 5,027
Net assets of
discontinued
operations - 357 - 3,086 2,416 2,134 1,966
Total assets 93,914 86,622 90,808 85,491 79,554 72,639 65,219
Insurance
reserves 39,558 36,854 37,444 35,889 31,612 27,184 22,331
Short-term
borrowings 6,573 4,032 4,929 4,608 2,215 7,882 7,058
Long-term debt 12,440 13,343 12,926 13,735 17,585 11,849 9,344
Total debt 19,013 17,375 17,855 18,343 19,800 19,731 16,402
Securitized
receivables 4,615 6,352 5,791 7,812 8,330 6,040 3,526
Total funding 23,628 23,727 23,646 26,155 28,130 25,771 19,928
Shareholders'
equity 10,689 10,016 11,664 10,773 14,188 12,824 13,622
Book value per
common share 26.77 25.01 29.58 27.89 40.29 37.38 39.77
Note: Series A Mandatorily Exchangeable Preferred Shares (PERCS) are
considered common shares for purposes of calculating book value per
common share and earnings (loss) per common share. For the year
ended December 31, 1992, including PERCS as common shares resulted
in an anti-dilutive impact on the loss per common share calculation.
Excluding the PERCS from the calculation, the loss per common share
from continuing operations and net loss per common share for the
year ended December 31, 1992 would have been ($7.78) and ($11.73),
respectively. The net loss applicable to common shares, including
all preferred share dividends, for the year ended December 31, 1992
was $4.05 billion. Financial position for Oct. 1, 1994 and Dec. 31,
1993 reflects the adoption of new accounting rules for certain
investments in debt securities. Operating results and financial
position for 1994, 1993 and 1992 reflect the adoption of new
accounting rules for postretirement and postemployment benefits.
SEARS, ROEBUCK AND CO.
PRO FORMA SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary consolidated pro forma
financial information of the Company for the year-to-date period ended
October 1, 1994 and the year ended December 31, 1993. The pro forma
information gives effect to the current assumptions relating to the
proposed spin-off of Allstate, the contemplated divestiture of Homart at
book value and other adjustments as described under ``Sears, Roebuck and
Co. Notes to Pro Forma Condensed Consolidated Financial Statements.'' The
summary information has been derived from and should be read in conjunction
with the pro forma condensed consolidated financial statements included
herein and the financial statements and financial statement schedules
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 and Quarterly Report on Form 10-Q for the quarterly
period ended October 1, 1994, both of which are incorporated herein by
reference.
Year-To-Date
Through Year Ended
Oct. 1, Dec. 31,
(millions, except per common share data) 1994 1993
Operating results
Revenues $22,201 $29,593
Cost and expenses 20,432 27,456
Interest 913 1,250
Funding cost on securitized receivables 292 432
Total funding costs 1,205 1,682
Operating income 856 887
Other income 30 115
Income before income taxes and minority interest 886 1,002
Income taxes 360 345
Income from continuing operations 524 649
Earnings from continuing operations per
common share 1.29 1.62
Cash dividends declared per common share 0.69 0.92
Financial position
Retail customer receivables $16,702
Merchandise inventories 4,505
Property and equipment, net 4,522
Total assets 30,221
Short-term borrowings 5,835
Long-term debt 9,543
Total debt 15,378
Securitized receivables 4,615
Total funding 19,993
Shareholders' equity 3,840
Book value per common share 9.08
Note: Series A Mandatorily Exchangeable Preferred Shares are considered
common shares for purposes of calculating book value per common
share and earnings from continuing operations per common share.
SEARS, ROEBUCK AND CO.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma condensed consolidated statements of income for the
year-to-date period ended October 1, 1994 and the year ended December 31,
1993, give effect to the current assumptions relating to the proposed
spin-off of Allstate, the contemplated divestiture of Homart at book value
and other adjustments as described under ``Sears, Roebuck and Co. Notes to
Pro Forma Condensed Consolidated Financial Statements,'' assuming the
transactions had occurred as of the beginning of the respective periods.
The pro forma condensed consolidated statement of financial position gives
effect to the current assumptions relating to the transactions as if they
had occurred on October 1, 1994.
The pro forma condensed consolidated financial statements have been derived
from and should be read in conjunction with the financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993
and Quarterly Report on Form 10-Q for the quarterly period ended October 1,
1994, both of which are incorporated herein by reference. The pro forma
information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations or financial position
that would have occurred had such transactions been consummated on the
dates assumed; nor is the pro forma information intended to be indicative
of the Company's future results of operations or financial position.
Pro Forma Condensed Consolidated Statement of Income Year-To-Date Through
October 1, 1994
(millions, except per common share data)
Pro Forma Adjustments
Historical Allstate Other Pro Forma
(Note 1) (Note 2)
Revenues
Merchandise sales and
services $19,525.1 $ $ $19,525.1
Credit revenues 2,676.1 2,676.1
Insurance operations and
other revenues 16,278.8 (16,030.5)(A) (189.7)(A) -
(58.6)(B)
Total revenues 38,480.0 (16,030.5) (248.3) 22,201.2
Costs and expenses
Cost of sales, buying
and occupancy 13,967.5 13,967.5
Claims, benefits and
related expense 15,895.0 (15,895.0)(A) -
Provision for un-
collectible accounts 501.7 501.7
Selling and
administrative expense 6,158.5 9.1 (C) (151.4)(A) 5,962.4
(53.8)(B)
Interest expense (Note 3) 1,089.9 (44.6)(A) (95.0)(A) 913.3
14.0 (B) (56.3)(B)
5.3 (C)
Total costs and
expenses 37,612.6 (15,911.2) (356.5) 21,344.9
Operating income 867.4 (119.3) 108.2 856.3
Other income 83.6 8.4 (A) (62.5)(A) 29.5
Income before income
taxes and minority
interest 951.0 (110.9) 45.7 885.8
Income taxes 117.1 228.4 (D) 14.7 (C) 360.2
Minority interest (64.9) 63.7 (A) (1.2)
Income from continuing
operations $769.0 $(275.6) $31.0 $524.4
Earnings from
continuing operations
per common share $1.92 $1.29
Average common and
common equivalent
shares outstanding 388.7 388.7
See Notes to Pro Forma Condensed Consolidated Financial Statements.
Pro Forma Condensed Consolidated Statement of Income Year Ended December
31, 1993
(millions, except per common share data)
Pro Forma Adjustments
Historical Allstate Other Pro Forma
(Note 1) (Note 2)
Revenues
Merchandise sales and
services $26,291.2 $ $ $26,291.2
Credit revenues 3,301.7 3,301.7
Insurance operations and
other revenues 21,244.6 (20,936.5)(A) (230.9)(A) -
(77.2)(B)
Total revenues 50,837.5 (20,936.5) (308.1) 29,592.9
Costs and expenses
Cost of sales, buying
and occupancy 18,759.1 18,759.1
Claims, benefits and
related expense 19,513.6 (19,513.6)(A) -
Provision for un-
collectible accounts 820.9 820.9
Selling and
administrative expense 8,140.1 26.9 (C) (215.2)(A) 7,876.0
(75.8)(B)
Interest expense (Note 3) 1,498.1 (81.6)(A) (115.0)(A) 1,249.9
16.4 (B) (74.0)(B)
6.0 (C)
Total costs and
expenses 48,731.8 (19,545.9) (480.0) 28,705.9
Operating income 2,105.7 (1,390.6) 171.9 887.0
Other income 217.6 (34.7)(A) (68.3)(A) 114.6
Gain on sale of
subsidiary's stock 635.1 (635.1)(A) -
Income before income
taxes and minority
interest 2,958.4 (2,060.4) 103.6 1,001.6
Income taxes 400.9 (90.9)(D) 35.3 (C) 345.3
Minority interest (148.4) 141.2 (A) (7.2)
Income from continuing
operations $2,409.1 $(1,828.3) $68.3 $649.1
Earnings from
continuing operations
per common share $6.22 $1.62
Average common and
common equivalent
shares outstanding 382.9 382.9
See Notes to Pro Forma Condensed Consolidated Financial Statements.
Pro Forma Condensed Consolidated Statement of Financial Position October 1,
1994
(millions) Pro Forma Adjustments
Historical Allstate Other Pro Forma
(Note 1) (Note 2)
Assets
Investments $48,904.1 $(46,986.4)(A)$(1,917.7)(A) $ -
Retail customer
receivables 16,701.5 16,701.5
Cash and invested
cash 1,614.4 (740.5)(A) (95.0)(A) 761.4
(17.5)(B)
Insurance premium
installments and other
receivables 4,238.7 (3,342.1)(A) (145.1)(A) 704.6
(46.9)(B)
Merchandise inventories 4,504.5 4,504.5
Property and equipment,
net 5,684.3 (795.1)(A) (4.1)(A) 4,522.1
(363.0)(B)
Deferred income taxes 3,381.9 (1,482.4)(A) 8.5 (A) 1,784.8
(123.2)(B)
Other assets 6,101.5 (4,783.3)(A) (2.1)(A) 1,242.0
(74.1)(B)
Separate Accounts 2,783.2 (2,783.2)(A) -
Total assets $93,914.1 $(60,913.0) $(2,780.2) $30,220.9
Liabilities and Shareholders' Equity
Insurance reserves $39,557.6 $(39,557.6)(A) $ $ -
Long-term debt 12,439.9 (862.0)(A) (1,189.9)(A) 9,542.8
(845.2)(B)
Short-term borrowings 6,572.6 450.0 (B) (837.6)(A) 5,835.2
(349.8)(C)
Unearned revenues 7,289.4 (5,973.2)(A) 14.0 (B) 1,330.2
Accounts payable and
other liabilities 12,573.0 (2,972.8)(A) (128.0)(A) 9,393.7
(90.0)(B) 11.5 (B)
Separate Accounts 2,773.3 (2,773.3)(A) -
Total liabilities 81,205.8 (52,128.7) (2,975.2) 26,101.9
Minority interest 2,019.8 (1,741.0)(A) 278.8
Shareholders' equity 10,688.5 (7,332.8)(A) 195.0 (B) 3,840.2
289.5 (C)
Total liabilities
and shareholders'
equity $93,914.1 $(60,913.0) $(2,780.2) $30,220.9
See Notes to Pro Forma Condensed Consolidated Financial Statements.
Pro Forma Condensed Consolidated Balance Sheet October 1, 1994
Based on the Company's significant insurance operations, the Company has
historically not classified its statement of financial position. Assuming
the completion of the proposed spin-off of Allstate, the Company will
present a classified balance sheet. The pro forma condensed consolidated
balance sheet below has been derived from the pro forma condensed
consolidated statement of financial position and gives effect to the
current assumed transactions as if they had occurred on October 1, 1994.
(millions)
Assets
Current assets
Cash and invested cash $761.4
Retail customer receivables 16,701.5
Other receivables 671.8
Inventories 4,504.5
Deferred income taxes 1,253.5
Other current assets 376.2
Total current assets 24,268.9
Property and equipment, net 4,522.1
Deferred income taxes 531.3
Other assets 898.6
Total assets $30,220.9
Liabilities
Current liabilities
Short-term borrowings $5,835.2
Current portion of long-term debt
and capitalized lease obligations 1,303.2
Accounts payable and other current
liabilities 7,270.7
Total current liabilities 14,409.1
Long-term debt and capitalized
lease obligations 8,239.6
Postretirement benefits, minority
interest and other liabilities 3,732.0
Total liabilities 26,380.7
Shareholders' equity 3,840.2
Total liabilities and shareholders'
equity $30,220.9
See Notes to Pro Forma Condensed Consolidated Financial Statements.
Notes to Pro Forma Condensed Consolidated Financial Statements
Note 1 - To reflect the impact of the proposed distribution of the
Company's 80.2 percent ownership of Allstate in a tax-free
dividend to Sears common shareholders including the following:
(A) Elimination of the Company's 80.2 percent ownership of
Allstate from the Company's historical consolidated
financial statements.
(B) Payment by the Company of the $450 million demand collateral
note payable to AIC. See ``Relationships Between the Company
and Allstate-Business Relationships-Demand Collateral
Note.''
(C) Equal division of the leveraged employee stock ownership
plan (ESOP) between the Company and Allstate. See
``Relationships Between the Company and Allstate-Agreements
Relating to the Distribution-Stock Transfers Between
Qualified Plans.''
(D) Impact on income taxes of the pro forma adjustments. Neither
the Company nor Allstate had established a valuation reserve
relating to its deferred tax assets because each such
corporation considers it more likely than not that it will
earn sufficient taxable income in the future to realize such
deferred tax assets.
While the Company's effective tax rate is expected to
increase after the Distribution, it is not expected to vary
materially from the pro forma effective tax rate.
The Distribution may necessitate a change in the investment
strategy of Allstate for tax planning purposes.
Specifically, Allstate may vary its mix of holdings of
taxable and tax-exempt securities. The extent of any shift
in the portfolio will depend on underwriting performance and
investment yields. While such a shift will tend to increase
the effective tax rate, it will also increase investment
income, as taxable securities generally have higher pre-tax
yields than tax-exempt securities. The net impact of any
change in strategy may reduce the after-tax yield on the
portfolio. However, any change in strategy is not expected
to have a material effect on results of operations,
liquidity or capital resources.
Note 2 - To reflect the impact of the following proposed or completed
transactions:
(A) Elimination of Homart Development Co. from the Company's
historical consolidated financial statements assuming a
divestiture with proceeds equal to Homart's book value. The
Company believes the divestiture of Homart is probable and
that book value represents a reasonable estimate of the
probable Homart sales price. There can be no assurance,
however, that the actual sales price will not vary from this
amount.
(B) Elimination of Sears Tower and its related mortgages from
the Company's historical consolidated financial statements.
On November 7, 1994, the Company transferred ownership of
Sears Tower and its related mortgages to a trust. As a
result of the transfer, an extraordinary after-tax gain of
$195.0 million, or approximately 50 cents per Sears common
share, has been recorded in the fourth quarter of 1994.
(C) Impact on income taxes of the pro forma adjustments.
Note 3 - Impact on interest expense assumes the transactions in Notes 1
and 2 occurred at the beginning of the period. The assumed annual
average commercial paper interest rates were 4.15% and 3.64% for
the year-to-date period ended October 1, 1994 and the year ended
December 31, 1993, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE CONTINUING BUSINESSES OF THE COMPANY
The following discussion relates to the continuing businesses of the
Company. Information related to liquidity and capital resources at October
1, 1994 is set forth below. Information related to the results of
operations for the years ended December 31, 1991, 1992 and 1993 and for the
year-to-date periods ended September 30, 1993 and October 1, 1994 and
liquidity and capital resources at December 31, 1993 is incorporated by
reference to the information presented under the captions ``Sears
Merchandise Group-Analysis of Operations'' and ``- Analysis of Financial
Condition'' on pages 39 through 43 of the Company's 1993 Annual Report
which is incorporated by reference in the Company's Annual Report on Form
10-K for the year ended December 31, 1993, and to the information presented
under the caption ``Management's Discussion and Analysis of Financial
Condition and Results of Operations-Sears Merchandise Group'' on pages 13
through 15 of the Company's Quarterly Report on Form 10-Q for the quarterly
period ended October 1, 1994, which Form 10-K and Form 10-Q are
incorporated herein by reference.
After the proposed Distribution, the Company will continue to be highly
liquid. On a pro forma basis, cash and invested cash, retail customer
receivables after securitization and inventory totaled $22.0 billion at
October 1, 1994.
The Company maintains access to a variety of capital markets to preserve
flexibility and diversify its funding sources on a competitive and cost
effective basis. The Company issues senior unsecured debt via underwritten
offerings and its medium term note program, securitizes customer accounts
receivables through Sears Receivables Financing Group, Inc., a wholly-owned
subsidiary, and transacts private placements through wholly-owned
affiliates. Sears Roebuck Acceptance Corp. (``SRAC''), a wholly-owned
subsidiary of the Company, issues unsecured commercial paper. SRAC is a
first tier issuer of commercial paper under SEC Regulation 2a-7, which
broadens access within the commercial paper market. The following sets
forth the ratings of the Company and certain financing subsidiaries from
four nationally-recognized rating agencies:
Duff &
Moody's Phelps Fitch
Investors Standard Credit Investors
Service & Poor's Rating Co. Service, Inc.
Unsecured long-term debt A2 BBB A- A
Unsecured commercial paper P-1 A-2 D-1 F-1
Term securitization Aaa AAA AAA AAA
Asset-backed commercial
paper P-1 A-1+/A-1 - -
On November 10, 1994, following the announcement of the proposed
Distribution, Moody's Investors Service stated that it was continuing its
review for a possible upgrade of the Company's senior debt rating of Baa1.
Fitch Investors Services, Inc. and Duff & Phelps Credit Rating Co. each
reaffirmed their rating of the Company's senior debt of A and A-,
respectively. Standard & Poor's lowered its rating of the Company's senior
debt from BBB+ to BBB. On January 19, 1995, Moody's Investors Service
raised the rating of the Company's long-term senior debt to A2 from Baa1
and upgraded SRAC's commercial paper rating to P-1 from P-2. The Company
believes that it will continue to obtain funds on a competitive and
cost-effective basis.
On a pro forma basis, on October 1, 1994, the net funding for the Company's
domestic merchandising and credit operations was $17.8 billion, including
retail customer receivables securitized of $4.1 billion. This funding
primarily supported the Company's $20.1 billion in gross domestic retail
customer receivables. International operations' net funding portfolio was
$1.8 billion and was used primarily to support retail customer receivables.
BUSINESS OF THE COMPANY AFTER THE DISTRIBUTION
After the Distribution, the Company's principal business will be conducting
merchandising operations in the United States, Canada, Puerto Rico and
Mexico. The Company is among the largest retailers in the world, on the
basis of sales and services, and is composed of two segments: domestic
operations and international operations. Components of domestic operations
are domestic merchandising and domestic credit operations. Domestic
merchandising includes the core merchandising and product services
businesses in the United States and Puerto Rico. The Company operates
approximately 800 Sears department stores and 1,074 specialty stores in the
United States and Puerto Rico. The specialty stores include Sears Hardware,
Sears Homelife, dealer stores (see description below) and Western Auto
Supply Company and its subsidiaries, Tire America and NTW (``Western
Auto''). Domestic credit operations primarily consist of activities related
to the SearsCharge card, the largest proprietary credit card in the nation
with approximately 25 million active customer accounts. International
operations consist of similar retail and credit operations in Canada
through Sears Canada Inc., a consolidated, 61.1% owned subsidiary (``Sears
Canada''), and in Mexico through Sears, Roebuck de Mexico, S.A. de C.V., a
consolidated, 75% owned subsidiary ("Sears Mexico").
Homart Development Co., which develops, owns and manages regional shopping
centers and retail community centers and owns and manages office
properties, is also a wholly-owned subsidiary of the Company. The Company
is pursuing a divestiture of Homart.
Strategic Initiatives
In early 1993, the Company announced a major restructuring program to build
on its existing initiatives to streamline and focus the Sears Merchandise
Group operations. This program included discontinuing domestic catalog
operations, a voluntary early retirement incentive program, closing 113
unprofitable retail department stores, streamlining or discontinuing
various unprofitable merchandise lines and the write-down of underutilized
assets to market value. The Company also reorganized its domestic
merchandising operations into the Apparel Group, Home Group and Automotive
Group (as described below). The restructuring program was intended to
reduce operating costs and improve the Company's competitive position and
earnings potential. The restructuring program eliminated approximately
50,000 full-time and part-time positions. The following five strategic
objectives were formulated in 1993 and have served as a guide to improve
the profitability of Sears Merchandise Group.
Focus on Core Businesses. Domestic merchandising is focusing on middle
income women as its primary core customer, and expanding the product
offering in apparel. This strategy is designed to take advantage of the
Company's existing strengths of strong private label brands, a loyal
customer base, a strong position in durable goods, highly-focused product
lines, a network of mall-based department stores, a nationwide service
organization and attractive credit programs. A ``Pure Selling Environment''
program is building a strong customer service orientation by relieving
sales associates of administrative responsibilities and enabling them to
devote more time and effort serving customers.
Make Sears a Compelling Place to Shop. To support the focus on the core
retail businesses, the Company has a $4 billion capital expenditure program
for the period 1993 through 1997 to make the Sears store a more compelling
place for customers to shop, with a primary focus on upgrading Sears
stores. The renovated and updated stores have increased selling area, more
extensive apparel offerings, wider aisles and better lighting. By 1997, the
Company plans to increase significantly the apparel selling area through
the addition of 12 million square feet in renovated and updated stores.
Apparel offerings are designed to meet shoppers' needs with a mixture of
national brands and high-quality, private label merchandise and will
include expanded fragrance and cosmetics departments. Capital is also being
used for selected new Sears stores and the roll-out of promising
free-standing specialty retail concepts, such as Sears Homelife and Sears
Hardware stores.
Cost and Productivity Improvement. Customer service, expense and logistics
areas have been benchmarked against the competition and both expense
reduction and process improvement programs are ongoing. The programs' goals
are to improve the value of merchandise to the customer, reduce selling and
administrative expenses as a percent of revenues and improve productivity
and customer service levels.
Market Focus. Programs have been initiated to renew emphasis on
market-by-market assortment, marketing and pricing to strengthen the local
competitive position of each store. In addition, merchandising offerings
are being implemented to target small and rural markets, and Hispanic-
American, African-American and Asian-American customers.
New Corporate Culture. Programs are in place to foster teamwork, customer
focus, speed and simplicity in the organizational culture and develop depth
in management. Such programs include an expansion of the Company's stock
option program during 1994 to include all salaried employees and an
incentive pay program based on the growth of the Sears Merchandise Group,
as measured by increases in profits. New culture is a critical element in
the success of the preceding strategic objectives.
Domestic Operations
Domestic merchandising operations sell a broad line of general merchandise
and services through various types and sizes of retail facilities and
direct response marketing in the United States and Puerto Rico. At October
1, 1994, domestic merchandising operations included:
(bullet) 799 Sears department stores, which include 412 large-size stores
located principally in shopping malls in major metropolitan
areas, 378 medium-size stores that also carry an extensive
assortment of merchandise and nine small-size, hard-line stores
that serve either the neighborhoods of metropolitan areas or
smaller communities and stock a limited selection of appliances,
hardware, sporting goods and automotive supplies.
(bullet) Western Auto. Western Auto is a leading retail and wholesale
marketer of automotive supplies, tires, appliances and lawn and
garden equipment. Western Auto operates through 623 company-owned
retail stores (including 117 Tire America and 127 NTW stores) in
34 states, Puerto Rico and the United States Virgin Islands.
Western Auto sells also at wholesale to 1,046 independently owned
and operated dealer stores nationwide.
(bullet) 58 free-standing Sears Homelife furniture stores.
(bullet) 78 Sears Hardware stores.
(bullet) 250 dealer stores operated under the Sears name. The dealer
stores are primarily independently owned and operated, and carry
home appliances, home electronics and lawn and garden equipment.
Domestic merchandising's Apparel Group consists of the women's, men's and
children's apparel and home fashion departments. The Home Group consists of
home appliances and electronics, furniture (including Sears Homelife
furniture stores), and home improvement businesses (including the
mall-based departments, Sears Hardware stores and home installation
services), dealer stores and product services. The Home Group's product
services operations provide repair parts, customer service and repair work
on national brand items in addition to Sears brand name products. Product
services also offers installation, repair and monitoring and other services
for consumer and commercial programs. The Automotive Group consists of the
Sears Tire and Auto Centers and Western Auto.
Domestic credit operations initiate and maintain, in the United States and
Puerto Rico, customer credit accounts generated by the domestic
merchandising operations. As of October 1, 1994, domestic credit had
approximately 25 million active customer accounts. These accounts had an
average balance of $841, for a total of $20.1 billion of retail customer
receivables before subtracting account balances sold.
On August 1, 1993, all domestic Sears stores began accepting VISA,
MasterCard and American Express cards for purchases, in addition to
SearsCharge, Discover Card, personal check or cash, in order to attract new
customer and incremental sales. Although customers' use of VISA, MasterCard
and American Express cards replaces to some extent their use of Sears
credit plans, it is expected that the long-term effect on domestic credit
operations will be offset by the effects of new initiatives to increase
SearsCharge market penetration in all sales and service channels. Despite
the introduction of third-party cards, domestic sales charged to the
SearsCharge card as a percentage of total sales has remained stable.
At October 1, 1994, domestic operations employed approximately 260,000 full
and part-time employees.
International Operations
Sears Canada is the largest single retailer of general merchandise in
Canada. At October 1, 1994, Sears Canada operated 110 department stores, 11
outlet stores and 1,382 catalog selling units. Approximately 39,300 full
and part-time employees were employed by Sears Canada at December 31, 1994.
At December 31, 1994, Sears Mexico operated 41 department stores and nine
satellite stores. Approximately 9,700 full and part-time employees were
employed by Sears Mexico as of December 31, 1994.
MANAGEMENT OF THE COMPANY AFTER THE DISTRIBUTION
The following table sets forth the names of the persons who are presently
expected to be the executive officers of the Company immediately after the
Distribution, the positions and offices with the Company presently held by
them, the date on which they first became officers of the Company or the
Sears Merchandise Group and their current ages:
Edward A. Brennan(1) Chairman of the Board of Directors,
President and chief Executive Officer 1978 61
James M. Denny(1) Vice Chairman and Acting Chief
Financial Officer 1986 62
David Shute Senior Vice President, General Counsel
and Secretary 1981 64
James A. Blanda Vice President and Controller 1992 51
Alice M. Peterson Vice President and Treasurer 1993 42
Sears Merchandise Group(2)
Arthur C. Martinez(1) Chairman and Chief Executive Officer,
Sears Merchandise Group 1992 55
Russell S. Davis Executive Vice President and Chief
Financial Officer, Sears Merchandise
Group 1990 59
Anthony J. Rucci Executive Vice President,
Administration, Sears Merchandise Group 1993 44
John H. Costello Senior Executive Vice President,
General Manager, Marketing Division,
Sears Merchandise Group 1993 47
Robert Mettler President, Apparel and Home Fashions
Group, Sears Merchandise Group 1993 54
Paul A. Baffico President, Automotive Group,
Sears Merchandise Group 1992 48
Marvin M. Stern President, Home Group, Sears
Merchandise Group 1988 59
Allan B. Stewart President, Retail Stores, Sears
Merchandise Group 1984 52
Jane J. Thompson Executive Vice President, Credit,
Sears Merchandise Group 1988 43
William G. Pagonis Executive Vice President, Logistics,
Sears Merchandise Group 1993 53
Alan J. Lacy Senior Vice President, Finance,
Sears Merchandise Group 1995 41
(1) Mr. Brennan has stated that he expects to remain in the position of
Chairman of the Board, President and Chief Executive Officer of the
Company until the successful completion of the Distribution and during
a transition period thereafter. After such period, Mr. Brennan also
does not expect to remain a director of the Company. Mr. Denny expects
to remain as Vice Chairman and Acting Chief Financial Officer of the
Company until the successful completion of the Distribution and during
a transition period thereafter. Upon Mr. Brennan's retirement, the
Board expects that Mr. Martinez will succeed him and be elected as
Chairman of the Board of Directors, President and Chief Executive
Officer. Mr. Martinez became a director of the Company in February
1995.
(2) It is expected that the Merchandise Group will cease to be a separate
business group sometime following the Distribution. When this occurs,
the executive officers presently in the Merchandise Group are expected
to become officers of the Company, with similar titles and functions
(other than the reference to the Merchandise Group in their titles).
No family relationships exist among the above-named individuals.
Each of the officers named above was elected or appointed to serve in the
office indicated until the first meeting of the Board following the annual
meeting of shareholders in 1995 and until his or her successor is elected
and qualified or until such officer reaches retirement age or resigns.
With the exception of Messrs. Blanda, Costello, Davis, Lacy, Martinez,
Mettler, Pagonis and Rucci, these officers have held their positions set
forth in the table above for at least the last five years or have served
the Company or its subsidiaries in various executive or administrative
capacities for at least that length of time.
Mr. Blanda joined the Company as Vice President and Controller in December
1992. Before joining the Company, he had been a partner in the accounting
and auditing firm of KPMG Peat Marwick since 1983.
Mr. Costello joined the Company as Senior Executive Vice President, General
Manager, Marketing Division, of the Merchandise Group of the Company, in
April 1993. Before joining the Company he had been President of Nielsen
Marketing Research USA.
Mr. Davis joined the Company as Senior Vice President and Chief Financial
Officer of the Merchandise Group for the Company, in June 1990. Before
joining the Company, he had been Executive Vice President and Chief
Financial Officer, and previously Senior Vice President, Planning, of
Federated Department Stores/Allied Department Stores.
Mr. Lacy joined the Company effective January 1, 1995. Before joining the
Company, he had been Vice President, Financial Services and Systems of
Philip Morris Companies Inc. and President of Philip Morris Capital
Corporation since September, 1993 and, from September, 1989 to September,
1993, was Senior Vice President of Kraft General Foods in charge of
finance, strategy and development matters.
Mr. Martinez joined the Company as Chairman and Chief Executive Officer of
the Sears Merchandise Group in September 1992. Before joining the Company,
he had been a Vice Chairman of Saks Fifth Avenue and responsible for all of
its administrative functions since August 1990 and, from January 1987 until
August 1990, was Senior Vice President of Batus, Inc. and responsible for
its Saks Fifth Avenue, Marshall Field's, J.B. Ivey and Breuner's stores.
Mr. Mettler joined the Company as President, Apparel Group, of the
Merchandise Group of the Company, in February 1993. Before joining the
Company, he had been President and Chief Executive Officer of Robinson's
Inc.
Mr. Pagonis joined the Company as Senior Vice President of Logistics, in
November 1993. Before joining the Company, he had been a Lieutenant General
in the U.S. Army, serving as Director for Transportation, Energy and Troop
Support in the Office of the Deputy Army Chief of Staff for Logistics.
Mr. Rucci joined the Company as Executive Vice President, Administration in
October 1993. Before joining the Company, he had been Senior Vice
President, Strategy, Business Development and External Affairs and
previously Senior Vice President, Human Resources, of Baxter International,
Inc.
STOCK OWNERSHIP INFORMATION
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information with respect to
beneficial owners, to the best of the Company's knowledge, of 5% or more of
any class of voting security of the Company as of February 6, 1995.
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
The Northern Trust Company
of New York 29,344,443 shares 8.3%
19th Floor, 80 Broad Street Trustee of the trust under The
New York, NY 10004 Savings and Profit Sharing Fund
of Sears Employees(a)
United States Trust Company
of New York 19,624,336 shares 5.6%
114 West 47th Street Trustee of the Sears, Roebuck
New York, NY 10036-1532 and Co. Employee Stock
Ownership Trust(a)
(a) Beneficial ownership may under certain circumstances include both
voting power and investment power. Information is provided for
reporting purposes only and should not be construed as an admission of
actual beneficial ownership.
Security Ownership of Directors and Executive Officers
The following table sets forth certain information with respect to
beneficial share ownership by directors and executive officers of the
Company as of January 31, 1995. Except as set forth below, share ownership
of directors, certain executive officers and all executive officers and
directors as a group includes (i) shares in which they may be deemed to
have a beneficial interest, (ii) Sears Common Shares held as
nontransferable restricted shares awarded under the Company's 1979
Incentive Compensation Plan and 1990 Employees Stock Plan which are subject
to forfeiture under certain circumstances, and (iii) shares credited to
individual accounts in the Profit Sharing Fund. Share ownership of
directors and executive officers does not include shares of Allstate Common
Stock which they would receive as Sears Common Shareholders in connection
with the Distribution. Shares shown as ``subject to option'' are subject to
employee stock options exercisable on or before April 1, 1995.
Amount and Nature of
Beneficial Ownership(a)
Sears Allstate
Name Title Common Shares Common Stock
Hall Adams, Jr. Director 1,000 -
Warren L. Batts Director 1,600 5,200
Edward A. Brennan Chairman, President
& CEO 721,712(b) 3,000
James W. Cozad Director 1,000 -
William E. LaMothe Director 2,100 1,400
Arthur C. Martinez Chairman and CEO,
Sears Merchandise Group;
Director 174,722(c) -
Michael A. Miles Director 1,171 4,500
Sybil C. Mobley Director 1,255 -
Nancy C. Reynolds Director 1,400 1,200
Clarence B. Rogers, Jr. Director 4,696 1,000
Donald H. Rumsfeld Director 4,600 7,200
Jerry D. Choate Chairman and CEO,
Allstate Insurance Group 44,229(d) 14,450(d)
James M. Denny Vice Chairman 243,891(e) 2,000
Wayne E. Hedien Former Chairman and CEO,
Allstate Insurance Group 56,092(f) 134,472(f)
All directors and
executive officers
as a group 1,340,124(g) 174,922(g)
(a) Direct ownership unless indicated otherwise.
(b) Includes 19,900 shares held in trust for Mrs. Brennan. Also includes
585,586 shares subject to option.
(c) Includes 67,348 shares subject to option.
(d) Includes 37,703 Common Shares and 12,450 shares of Allstate Common
Stock subject to options.
(e) Includes 191,612 shares subject to option.
(f) Includes 15,281 Sears Common Shares and 106,872 shares of Allstate
Common Stock subject to options.
(g) Includes 957,523 Sears Common Shares and 119,322 shares of Allstate
Common Stock subject to options.
To the knowledge of the Company, as of January 31, 1995, no director had a
beneficial interest in more than .21% of the outstanding Sears Common
Shares, and all directors and executive officers together beneficially
owned an aggregate of 1,340,124 Sears Common Shares (.38% of the
outstanding shares), which included 957,523 shares subject to option. No
director or executive officer had a beneficial interest in more than .03%
of the outstanding Allstate Common Stock, and all directors and executive
officers together beneficially owned an aggregate of 174,922 shares of
Allstate Common Stock (.39% of the outstanding shares).
MARKET INFORMATION CONCERNING SEARS
COMMON SHARES AND ALLSTATE COMMON STOCK
Sears Common Shares are traded on the NYSE under the symbol ``S'' and on
several regional and foreign exchanges. As of February 17, 1995, the number
of Sears Common Shareholders of record was 262,256. Allstate Common Stock
is traded on the NYSE and the CSE under the symbol ``ALL''. As of February
10, 1995, there were 5,789 record holders of Allstate Common Stock.
The following table sets forth, for the fiscal periods indicated, the high
and low sales price per share of Sears Common Shares and Allstate Common
Stock as reported on the NYSE Composite Tape, and the cash dividends paid
per Sears Common Share and per share of Allstate Common Stock.
Sears Common Shares Allstate Common Stock
Cash Cash
Dividends Dividends
Year High Low Paid High Low Paid
1993:
First Quarter 55-3/4 43-7/8 .40 N/A N/A N/A
Second Quarter 56-1/4 50-3/8 .40 30* 27-1/8* N/A
Third Quarter 57-3/4 39-7/8 .40 33-3/8 27-7/8 .18
Fourth Quarter 60-1/8 51-3/8 .40 34-1/4 27-5/8 .18
1994:
First Quarter 55-1/8 42-7/8 .40 29-7/8 23 .18
Second Quarter 51-7/8 42-1/8 .40 26-1/2 22-5/8 .18
Third Quarter 51-1/8 45-5/8 .40 26-7/8 23 .18
Fourth Quarter 52-3/8 43-1/2 .40 25-1/2 22-5/8 .18
1995:
First Quarter** 49-7/8 44-1/8 .40 26-7/8 23-1/2 -***
* From June 2, 1993.
** Through February 21, 1995.
*** Allstate's board of directors has declared an increase in Allstate's
quarterly dividend to 19.5 cents per share (78 cents annualized) from
18 cents per share. The dividend is payable March 30, 1995 to
Allstate's shareholders of record on March 9, 1995.
On November 9, 1994, the last trading day before the announcement of the
proposed Distribution, the high and low sales prices of a Sears Common
Share and a PERCS depositary share were $49-3/8 and $48-1/2 and $56-3/4 and
$56-1/2, respectively. On November 9, 1994, the high and low sales prices
of Allstate Common Stock were $25 and $24-3/4, respectively. On February
21, 1995, the closing prices of a Sears Common Share and a PERCS depositary
share were $47-3/4 and $59-1/4, respectively, and the closing price of
Allstate Common Stock was $26-3/8 per share.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS OF THE COMPANY AND ALLSTATE
The Restated Certificate of Incorporation of the Company provides that a
director shall not be personally liable to the Company or its shareholders
for damages for any breach of duty in such capacity, unless a judgment or
other final adjudication adverse to him or her establishes that his or her
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law, or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally
entitled, or that his or her acts violated Section 719 of the NYBCL, which
concerns unlawful payments of dividends, stock purchases or redemptions,
distribution of assets to shareholders after dissolution of a corporation
and loans to directors.
The Restated Certificate of Incorporation of Allstate waives the personal
liability of a director for monetary damages for breach of fiduciary duty
to the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may in the future be amended. Section
102(b)(7) of the General Corporation Law currently provides that the
liability of a director may not be limited or eliminated for (i) breach of
duty of loyalty to the corporation or its stockholders, (ii) acts or
omissions not in good faith or which include intentional misconduct or
knowing violation of law, (iii) any transaction from which the director
derived an improper personal benefit or (iv) a violation of Section 174 of
the General Corporation Law, which concerns unlawful payments of dividends,
stock purchases or redemptions.
While the Restated Certificate of Incorporation of each of the Company and
Allstate provides directors with protection from awards for monetary
damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, the Restated Certificate of Incorporation of each of the
Company and Allstate will have no effect on the availability of equitable
remedies such as an injunction or rescission based on a director's breach
of his or her duty of care.
The By-Laws of both the Company and Allstate provide for indemnification of
the directors and officers of the Company and Allstate, respectively, to
the full extent permitted by applicable state law, as the same exists or
may hereafter be amended. The indemnification rights conferred by the
charter documents of both the Company and Allstate are not exclusive of any
other right to which a person seeking indemnification may be entitled under
any law, by-law, agreement, vote of shareholders or disinterested directors
or otherwise. Each of the Company and Allstate also has provided liability
insurance for their respective directors and officers for certain losses
arising from claims or charges made against them while acting in their
capacities as directors or officers.
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF THE COMPANY AND ALLSTATE
Differences in Corporation Laws
As a result of the Distribution, shareholders of the Company, whose rights
are governed by New York law, will also become shareholders of Allstate,
with their rights governed by Delaware law. The statutes and court
decisions with respect to rights of shareholders of corporations
incorporated under the laws of those two jurisdictions reflect several
differences.
The following discussion is intended only to highlight certain statutory
differences between the rights of Sears Common Shareholders and the rights
of holders of Allstate Common Stock. The discussion does not purport to
constitute a detailed comparison of the provisions of New York and Delaware
law. Shareholders are referred to those laws for further information.
Certain significant differences which affect the rights of shareholders are
as follows:
1. Shareholder Vote for Mergers. Corporations incorporated under
Delaware law must obtain the affirmative vote (except as indicated below)
of the holders of a majority of the outstanding shares of the corporation
entitled to vote thereon to approve a merger of the corporation into
another corporation, the sale of substantially all of the corporation's
assets or the voluntary dissolution of the corporation. In the same
situations, New York law requires the approval of two-thirds of the
outstanding shares entitled to vote thereon.
Delaware law does not require a shareholder vote of the surviving
corporation in a merger if (i) the merger agreement does not amend the
existing certificate of incorporation, (ii) each outstanding share of the
surviving corporation before the merger is unchanged, and (iii) the number
of shares to be issued in the merger does not exceed 20% of the shares
outstanding immediately prior to such issuance. New York law has no such
exception.
2. Appraisal Rights. Generally, New York law gives appraisal rights in
more situations than does Delaware law. Both Delaware law and New York law
provide such rights to shareholders entitled to vote in merger transactions
(except as indicated below). New York law also provides for such rights in
a sale of assets requiring shareholder approval, whereas Delaware law does
not.
Subject to certain exceptions, Delaware law does not recognize dissenters'
rights of appraisal in a merger or consolidation if the shares of the
corporation are either listed on a national securities exchange (the
Allstate Common Stock is currently listed on the NYSE and the CSE, which
are national securities exchanges) or held of record by more than 2,000
shareholders unless stockholders are required to accept for their shares in
the merger or consolidation anything other than common stock of the
surviving or resulting corporation or common stock of another corporation
that is so listed or held (and cash in lieu of fractional shares), or if
the corporation is the surviving corporation and no vote of its
shareholders is required.
3. Inspection of Shareholders' List. New York law provides for a right
of inspection of the shareholders' list and books of the corporation by any
person who has been either a record holder for more than six months or who
is authorized by the owners of at least five percent of any class of a
corporation's stock. Delaware law allows any shareholder to inspect the
shareholders' list and books of the corporation for a purpose reasonably
related to such person's interest as a shareholder.
4. Payment of Dividends. Under New York law, dividends can only be
paid out of surplus while under Delaware law, generally a corporation may
pay dividends out of the corporation's net profits for the fiscal year in
which the dividend is declared or from the preceding fiscal year, even if
the corporation has no available surplus.
5. Loans to Directors. New York law prohibits loans to directors
unless authorized by shareholder vote. Delaware law permits the Board of
Directors, without stockholder approval, to authorize loans to corporate
directors who are also officers or employees.
6. Corporate Action Without a Shareholders' Meeting. A shareholders'
meeting to authorize corporate action may be dispensed with by a New York
corporation only upon the written consent of all shareholders. Delaware law
permits corporate action without a meeting of stockholders upon the written
consent of the holders of that number of shares necessary to authorize the
proposed corporate action being taken, unless the certificate of
incorporation expressly provides otherwise.
7. Rights and Options. New York law requires shareholder approval of
any plan pursuant to which rights or options are to be granted to
directors, officers or employees. Delaware law does not require stockholder
approval of such plans although various other applicable legal requirements
may make stockholder approval of rights or option plans necessary or
desirable.
8. Consideration for Shares. New York law provides that neither
obligations of the subscriber for future payments nor future services shall
constitute payment or part payment for shares of a corporation.
Furthermore, certificates for shares may not be issued until the full
amount of the consideration therefor has been paid. Delaware law provides
that shares of stock may be issued, and shall be deemed to be fully paid
and nonassessable, if the corporation receives consideration having a value
not less than the par value of such shares and the corporation receives a
binding obligation of the subscriber to pay the balance of the subscription
price.
9. Regulation of Business Combinations. Both New York and Delaware
have provisions regulating business combinations such as mergers. In New
York under Section 912 of the NYBCL, a shareholder becomes subject to the
statute's restrictions when it acquires 20% of a corporation's voting
stock. During the first five years after the date the interested
shareholder acquired the stock making him an interested shareholder, such
interested shareholder may only merge with the corporation if the
corporation's board of directors had, before the shareholder acquired 20%
of the corporation's voting stock, given its approval to either the stock
acquisition by the shareholder or the business combination. After such
five-year period, a business combination between the interested shareholder
and the corporation may only occur if (i) the standard described in the
preceding sentence has been satisfied, (ii) a majority of the corporation's
disinterested shareholders approve the business combination, or (iii)
certain price and other terms specified in Section 912 of the NYBCL are
obtained by shareholders in the business combination.
In Delaware under Section 203 of the Delaware General Corporation Law (the
``DGCL''), generally a stockholder who acquires 15% or more of a
corporation's stock (an ``interested stockholder'') cannot engage in a
business combination (as defined) with that corporation for a period of
three years unless: (i) the board of directors of the corporation approves
the combination or acquisition of stock resulting in the stockholder
becoming interested before the stockholder acquires 15% or more of the
corporation's stock, (ii) the stockholder's stockholdings in the
corporation increase from less than 15% to more than 85% in one
transaction, or (iii) the board of directors of the corporation and at
least two-thirds of the corporation's disinterested stockholders approve
the business combination. Although Allstate is presently not governed by
Section 203 of the DGCL, Sears and Allstate presently expect that
Allstate's Restated Certificate of Incorporation will be amended prior to
the Distribution to cause Allstate to be governed by Section 203.
10. Regulation of a Corporation's Stock Repurchases. In New York under
the NYBCL, a corporation is restricted from paying more than market value
to any shareholder for the purchase by the corporation of more than 10% of
the corporation's stock without board and shareholder approval. Delaware
has no similar statutory restriction. However, Delaware courts have imposed
certain restrictions on such stock repurchases.
Significant Differences in Corporate Charters and By-Laws
The Restated Certificate of Incorporation and By-Laws of the Company and
Allstate also differ in several respects. The following discussion is
intended only to highlight material differences between the Restated
Certificate of Incorporation and By-laws of the Company and Allstate. The
discussion does not purport to constitute a detailed comparison of the
provisions of those charter documents, which are included or incorporated
by reference in documents incorporated by reference in this Proxy
Statement. See ``Incorporation of Certain Documents by Reference.''
1. Authorized Capital Stock. The Restated Certificates of
Incorporation of each of the Company and Allstate authorize the Board of
Directors of the Company and Allstate, respectively, to establish series of
preference and preferred stock and to determine, with respect to any such
series, among other things: the dividend rates; liquidation and dividend
preferences; provisions respecting redemptions; terms, if any, upon which
the shares are convertible; voting rights; and other rights thereof. The
Restated Certificate of Incorporation of the Company authorizes the
issuance of 1,000,000,000 Sears Common Shares and 50,000,000 preferred
shares (of which, as of the date of this Proxy Statement, 3,250,000 shares
are designated 8.88% Preferred Shares, First Series and 7,187,500 shares
are designated PERCS). The Restated Certificate of Incorporation of
Allstate presently authorizes the issuance of 450,000,000 shares of
Allstate Common Stock and 25,000,000 shares of preferred stock. Sears and
Allstate presently expect that Allstate's Restated Certificate of
Incorporation will be amended prior to the Distribution to increase the
number of authorized shares of Allstate Common Stock to 1,000,000,000.
2. Election of Directors. The Company's Restated Certificate of
Incorporation divides the Board of Directors into three classes, with
staggered terms of office. The Company's Restated Certificate of
Incorporation also provides for cumulative voting. As a result of
cumulative voting, shareholders holding a significant minority percentage
of the outstanding shares entitled to vote in the election of directors may
be able to ensure the election of one or more directors. However, because
the Board is classified, shareholders wishing to exercise cumulative voting
rights to assure the election of one or more directors must own
approximately three times as many shares as would be required if the Board
were not classified.
The Restated Certificate of Incorporation of Allstate does not provide for
a classified board or cumulative voting. As a result, the holder or holders
of a majority of the shares entitled to vote in an election of directors
will be able to elect all directors then being elected, and holders of a
substantial minority of the outstanding shares of Allstate Common Stock may
not have enough voting power to elect any directors.
3. Removal of Directors. The Company's Restated Certificate of
Incorporation provides that any director may be removed from office only
for cause and only by the affirmative vote of at least 75% of the shares
entitled to vote.
Allstate's By-Laws presently provide that any director may be removed, with
or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors. Sears and Allstate presently expect
that Allstate's Restated Certificate of Incorporation and By-Laws will be
amended prior to the Distribution to provide that any director may be
removed from office, with or without cause, only by the affirmative vote of
at least 66-2/3% of the shares entitled to vote except as otherwise
provided with respect to directors elected by any series of Preferred
Stock.
4. Special Meetings of Shareholders. The By-Laws of the Company
provide that a special meeting of shareholders may be called at any time by
the Chairman of the Board, the President or a majority of the members of
the Board of Directors or of the Executive Committee then in office.
The By-laws of Allstate presently provide that a special meeting of
stockholders may be called at any time by the Chairman of the Board and
Chief Executive Officer and shall be called at the request in writing of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of
Allstate issued and outstanding and entitled to vote. Sears and Allstate
presently expect that Allstate's By-laws will be amended prior to the
Distribution to provide that a special meeting of stockholders may be
called only by the Chairman of the Board and Chief Executive Officer or at
the request of a majority of the Board of Directors.
5. Shareholder Consent to Action Without Meeting. Any action required
or permitted to be taken at a meeting of shareholders of the Company may be
taken without a meeting, but only with the written consent of all
shareholders entitled to vote with respect to the subject matter thereof.
Allstate's Restated Certificate of Incorporation presently does not
prohibit stockholder consent to action without a meeting. As a result, any
action required to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special
meeting of stockholders, may be taken without a meeting with the written
consent of the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present. Sears and Allstate presently expect that Allstate's Restated
Certificate of Incorporation will be amended prior to the Distribution to
prohibit stockholder consent to action without a meeting by stockholders
entitled to vote generally in the election of directors.
6. Advance Notice Provisions for Shareholder Proposals and Shareholder
Nominations of Directors. The Company's By-Laws provide, in general, that
if a shareholder intends to propose business or make a nomination for the
election of directors at an annual meeting, the Company must receive
written notice of such intention not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting.
If the date of the meeting is advanced by more than 30 days or delayed by
more than 60 days from the prior anniversary date, notice must be delivered
not earlier than the 90th day prior to the annual meeting and not later
than the later of the 60th day prior to such meeting or the 10th day
following the public announcement of the date of such meeting. The notice
must include all information relating to the proposed nominee required by
law to be disclosed in solicitations of proxies for election of directors
or, in the case of a proposal, a brief description of the proposal and why
it should be raised at the meeting, and any material interest of the
shareholder or beneficial owner, if any, in the proposal. The notice also
must include (i) the name and address of both the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination is
made and (ii) the class and number of shares of the Company that are owned
beneficially and of record by such shareholder and beneficial owner. In
certain cases, the notice may be delivered later if the number of directors
to be elected to the Board of Directors is increased. The By-Laws also
provide, in general, that if a shareholder intends to make a nomination for
the election of directors at a special meeting, written notice including
all the information set forth above must be received by the Secretary of
the Company not earlier than the 90th day prior to the special meeting and
not later than the later of the 60th day prior to the special meeting or
the 10th day following public announcement of the special meeting and of
the nominees proposed by the Board of Directors to be elected at such
meeting.
Allstate's By-Laws provide, in general, that if a stockholder intends to
propose business or make a nomination for the election of directors at an
annual meeting, Allstate must receive written notice of such intention not
less than 90 days nor more than 120 days prior to the first anniversary of
the preceding year's annual meeting. The notice must include all
information relating to the proposed nominee required by law to be
disclosed in solicitations of proxies, for election of directors, or, in
the case of a proposal, a brief description of the proposal, and why it
should be raised at the meeting, and any material interest of the
stockholder or beneficial owner, if any, in the proposal. The notice also
must include (i) the name and address of both the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination is
made and (ii) the class and number of shares of Allstate that are owned
beneficially and of record by such stockholder and beneficial owner.
7. Amendment by Stockholders of Certain Provisions of the Restated
Certificate of Incorporation and By-Laws. The Restated Certificate of
Incorporation of the Company provides that the affirmative vote of at least
75% of the shares entitled to vote is required to alter, amend or repeal or
adopt provisions of the Company's Restated Certificate of Incorporation
relating to the number, election and term of the Company's directors; the
filling of director vacancies; the removal of directors; and the election,
terms of office, filling of vacancies and other features of any directors
elected separately by the holders of preferred shares.
Under Delaware law, the Restated Certificate of Incorporation of Allstate
may be amended by the affirmative vote of a majority of the shares entitled
to vote thereon. Allstate's By-Laws may be amended by the Allstate Board of
Directors or by the affirmative vote of a majority of the outstanding
shares entitled to vote thereon, present in person or by proxy, at a
stockholders meeting at which a quorum is present. Sears and Allstate
presently expect that Allstate's Restated Certificate of Incorporation and
By-Laws will be amended prior to the Distribution to provide that the
affirmative vote of at least 66-2/3% of the shares entitled to vote is
required to alter, amend or repeal or adopt provisions of Allstate's
Restated Certificate of Incorporation relating to the removal of directors
or, unless amended by the Allstate Board of Directors, of Allstate's
By-Laws.
Insurance Regulations Concerning Change or Acquisition of Control
Each of the Company and Allstate is currently an insurance holding company
subject to regulation throughout jurisdictions in which Allstate's
insurance subsidiaries do business. Certain of Allstate's subsidiaries are
property-liability and life insurance companies organized under the
respective insurance codes of Arizona, California, Florida, Illinois,
Nebraska, New York, Texas and Utah. The insurance codes in such states
contain similar provisions (subject to certain variations) to the effect
that the acquisition or change of ``control'' of a domestic insurer or of
any person that controls a domestic insurer cannot be consummated without
the prior approval of the relevant insurance regulator. In general, a
presumption of ``control'' arises from the ownership, control, possession
with the power to vote or possession of proxies with respect to 10% or more
of the voting securities of a domestic insurer or of a person that controls
a domestic insurer. In Florida, regulatory approval must be obtained prior
to the acquisition of 5% or more of the voting securities of a domestic
stock insurer or of a controlling company. In addition, certain state
insurance laws contain provisions that require pre-acquisition notification
to state agencies of a change in control of a non-domestic insurance
company admitted in that state. While such pre-acquisition notification
statutes do not authorize the state agency to disapprove the change of
control, such statutes do authorize certain remedies, including the
issuance of a cease and desist order with respect to the non-domestic
admitted insurer if certain conditions exist, such as undue market
concentration. Thus, any transaction involving the acquisition of 10% or
more (5% in Florida) of either Sears Common Shares or Allstate Common Stock
would generally require prior approval by the state insurance departments
of Arizona, California, Florida, Illinois, Nebraska, New York, Texas and
Utah and would require the pre-acquisition notification in those states
which have adopted pre-acquisition notification provisions and wherein
Allstate's insurance subsidiaries are admitted to transact business. Such
approval requirements may deter, delay or prevent certain transactions
affecting the ownership of Sears Common Shares or Allstate Common Stock.
After the Distribution, the Company will no longer be an insurance holding
company subject to insurance regulations concerning change or acquisition
of control. Allstate and its insurance subsidiaries will continue to be
subject to these and other regulations pertaining to insurance holding
companies and insurance companies.
INDEPENDENT AUDITORS
The consolidated financial statements and financial statement schedules of
the Company and subsidiaries included or incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993
have been audited by Deloitte & Touche LLP, independent auditors, for the
periods indicated in their reports thereon. Representatives of Deloitte &
Touche LLP will be present at the Special Meeting, will be available to
respond to questions and may make a statement if they so desire.
SHAREHOLDER PROPOSALS
As described in the Company's proxy statement for the 1994 annual meeting
of shareholders, proposals which shareholders intend to present at the 1995
annual meeting of shareholders (other than those submitted for inclusion in
the proxy material pursuant to Rule 14a-8 of the Proxy Rules of the SEC)
must be received by the Company no earlier than February 12, 1995 and no
later than March 14, 1995 to be presented at the 1995 annual meeting.
Proposals must have been received by November 23, 1994 to be eligible for
inclusion in the proxy material for the 1995 annual meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the SEC are incorporated
by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
2. Quarterly Reports on Form 10-Q for the quarterly periods ended April
2, July 2 and October 1, 1994.
3. Current Reports on Form 8-K dated January 11, February 1, March 9,
March 21, April 20, September 29 and November 10, 1994, and January
17, and February 7, 1995.
The Company will provide without charge to each person to whom a copy of
this Proxy Statement is delivered, on the written or oral request of any
such person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any or all of the
foregoing documents incorporated herein by reference (other than any
exhibits to such documents which are not specifically incorporated herein
or into such documents by reference). Requests should be directed to:
Sears, Roebuck and Co.
Sears Tower
Chicago, Illinois 60684
Attention: Shareholder Services
or
(800) SEARS 80
All documents filed by the Company with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the date of the Special Meeting or any adjournment thereof shall be deemed
to be incorporated by reference herein.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein (or in any other subsequently
filed document that also is incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall be
deemed to constitute a part hereof except as so modified or superseded.
AVAILABLE INFORMATION
The Company and Allstate are subject to the informational requirements of
the Exchange Act and the rules and regulations promulgated thereunder and
in accordance therewith file reports, proxy statements and other
information with the SEC. Reports, proxy statements and other information
filed by the Company and Allstate may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the SEC at 7
World Trade Center, Suite 1300, New York, New York and at Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois.
Copies of such information can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Reports and other information concerning the
Company can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, the Chicago Stock
Exchange, 440 South LaSalle Street, Chicago, Illinois 60605, and the
Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104.
Reports and other information concerning Allstate can also be inspected at
the offices of the NYSE and the CSE.
APPENDIX A: Allstate Appendix
THE ALLSTATE CORPORATION
Business of Allstate
Allstate is engaged, principally in the United States and Canada and
primarily through agents working exclusively for Allstate, in
property-liability insurance (including personal property and casualty
insurance and business insurance) and life insurance. Allstate, with more
than 20 million customers, is the country's second largest
property-liability insurer on the basis of 1993 statutory premiums earned
and is a major life insurer. Building on a strong market share of
approximately 12 percent in private passenger automobile and homeowners
insurance and benefitting from favorable demographic trends, Allstate is
well-positioned to expand its presence in both insurance lines.
Allstate's strategy is to enhance the profitability of its leading position
in its markets and to build on its core competencies by broadening its role
as a provider of life insurance, selected commercial coverages and other
risk management products. This strategy is designed to capitalize on: (1)
the strength of the Allstate name, (2) Allstate's network of full-time
agents, (3) Allstate's auto insurance capabilities, and (4) additional
distribution channels available to Allstate.
Through the use of proprietary data bases, which consist of marketing
characteristics and of characteristics of various types of risks in the
personal lines automobile and homeowners markets, Allstate is pursuing a
strategy of growth in the types of markets management believes will be
profitable while limiting growth in other markets. Allstate is pursuing the
same segmented growth strategy with respect to geographic areas, attempting
to grow its business more rapidly in areas where weather and seismic
conditions are relatively benign and in areas where the regulatory climate
is conducive to attractive returns, and constraining growth in other areas.
Allstate has also made extensive use of computer technology in progressing
toward its stated goal of reducing the ratio of operating expenses to
earned premiums over the 1993 through 1997 period. Allstate's use of this
technology has also reduced the time and paperwork associated with
processing policies and claims in the field. Allstate has aligned and
focused resources-including technology, improved processes, and agent
training-in order to meet the needs and expectations of its customers and
potential customers. The customer retention rates for Allstate's
standard/preferred auto policies have risen to 91.08% for the nine months
ended September 30, 1994 from 90.48% for fiscal year 1993 and 89.52% for
fiscal year 1992.
Allstate has achieved the leading market share in non-standard auto
insurance (insureds with a prior history of accidents or violations, or
owning high performance cars or having other special needs). This has been
a market segment in which Allstate has competed successfully by
capitalizing on an established distribution system, technology and claims
capability and by tailoring pricing and products to reach a broader market.
Allstate plans to continue to develop opportunities in this market.
Although Allstate's full-time agency force of approximately 14,500
full-time agents is at the core of its distribution system, Allstate is
expanding its market reach by distributing products in non-competing,
non-overlapping markets using independent agents, financial institutions,
specialized brokers and direct marketing. Allstate uses approximately 1,900
independent agents to market personal lines insurance to individuals in
rural markets not served by Allstate agents, and its subsidiary, Northbrook
Property and Casualty Insurance Company, uses 1,650 independent agents to
deliver commercial insurance to small and medium sized businesses.
Allstate's life insurance and annuity products also are marketed through
independent brokers and agents, and annuity products are marketed through
Dean Witter Reynolds and through banks. Specialized brokers are used to
distribute group pension and structured settlement products.
Recent Developments
On January 17, 1995, Allstate and its indirect wholly-owned subsidiary The
PMI Group, Inc. (``PMI''), filed registration statements with the SEC
regarding (1) the proposed sale by AIC to the public (the ``Stock
Offering'') of 61.4% of the shares of common stock of PMI (70% if the
underwriters' over-allotment option is exercised in full) and (2) a new
issue of Allstate Exchangeable Notes, exchangeable at maturity for all or a
significant portion of the remaining shares of PMI common stock (depending
upon exercise of the underwriters' over-allotment option with respect to
the notes offering, and the market price of PMI common stock at the
maturity of the notes, and subject to Allstate's election to pay cash in
lieu of delivering PMI common stock to repay the notes upon maturity). PMI
is engaged, through its wholly-owned subsidiary, PMI Mortgage Insurance
Co., in the business of private mortgage insurance. Allstate is proposing
to sell PMI in keeping with its strategic direction to focus on its core
property/casualty and life insurance businesses, and to realize the return
on its long-term investment in PMI Mortgage Insurance Co. Depending upon
the date of consummation of the Stock Offering, PMI will be deconsolidated
from the Allstate Group as early as January 1, 1995. The foregoing
offerings are subject to market and other conditions, and there can be no
assurance that they will be consummated.
During the autumn of 1994, Allstate offered a voluntary early retirement
incentive package to approximately 700 employees. The package offered one
year of salary continuation and related pension and welfare plan benefits
during the salary continuation period, and an enhanced retirement benefit.
See ``Selected 1994 Operating Results'' below.
Certain Factors Affecting The Allstate Corporation
Sears Common Shareholders should consider, among other things, the
following factors affecting Allstate and the insurance industry discussed
in Allstate's Annual Report on Form 10-K for the year ended December 31,
1993 incorporated by reference herein: (i) the inherent uncertainty in the
process of establishing property-liability loss reserves and the fact that,
consistent with industry practice, no reserves are established until a
loss, including a loss from a catastrophe, occurs; (ii) that ultimate
losses could materially exceed established loss reserves and have a
material adverse effect on results of operations and financial condition;
(iii) the potentially significant impact on the financial condition and
results of operations of property-liability insurers of claims arising out
of catastrophes; (iv) the need for Allstate's insurance company
subsidiaries to maintain appropriate levels of statutory capital and
surplus, particularly in light of continuing scrutiny by rating
organizations and state insurance regulatory authorities, and to maintain
financial strength or claims-paying ability ratings; (v) the extensive
regulation and supervision to which Allstate's direct and indirect
subsidiaries are subject, various regulatory initiatives that may affect
Allstate, and regulatory and other legal actions involving Allstate; and
(vi) Allstate's primary reliance, as a holding company, on dividends from
AIC to meet debt payment obligations, and regulatory restrictions on AIC's
ability to pay such dividends. Allstate has experienced, and can be
expected in the future to experience, catastrophe losses which may have a
material adverse impact on Allstate's results of operations and financial
condition. Following consummation of the Distribution, the Company will not
have a direct investment in Allstate and will no longer be a potential
source of capital to Allstate in the event losses, including those
resulting from catastrophes, require a capital infusion.
1994 California Earthquake
On January 17, 1994, a major earthquake centered in Northridge California
occurred, registering 6.8 on the Richter scale, which has resulted in the
second highest total losses from a single catastrophe incurred by Allstate
in its history. Following the earthquake, Allstate rapidly deployed a
significant number of claim adjusters to the affected areas, and on
February 1, 1994, Allstate announced that its preliminary provision for
losses was $350 million ($227.5 million after-tax). Since February 1, 1994,
based on its ongoing evaluation of ever increasing claim data and changing
circumstances, Allstate has revised its provision for Northridge losses a
number of times. On March 21, 1994, Allstate increased its provision to
$600 million ($390 million after-tax, an increase of $162.5 million
after-tax), principally due to the increase in reported claims, more
expansive claims data owing to field inspections, the input of specialists
in the claims estimation process and the significant effect of various
aftershocks. On April 20, 1994, in preparation of the March 31, 1994
financial statements and earnings release for the first quarter, Allstate
increased its provision to $950 million ($617.5 million after-tax, an
increase of $227.5 million after-tax), principally due to hidden damage
which was revealed as repairs began, the escalation of repair costs due to
a shortage of contractors and rising material costs, the unanticipated
severity of personal contents claims, numerous aftershocks and the
continuation of greater than expected numbers of new claims. In the second
quarter, Allstate released $125 million of no longer necessary catastrophe
reserves that had previously been recorded with respect to Hurricane Andrew
and added a $150 million provision for Northridge losses, resulting in a
gross provision for Northridge of $1.1 billion ($715 million after tax, an
increase of $97.5 million after tax). Second quarter-end and subsequent
disclosures of the Northridge losses were determined after giving effect to
the catastrophe reserve release and reported in terms of the net effect on
the income statement. The resolution of Hurricane Andrew claims has taken
several years owing to, among other things, the substantial damage
inflicted, the uncertainty of whether insureds would rebuild, questions
about applicable building codes and litigation. Management released the
$125 million in the 1994 second quarter following a court decision
favorable to insurers, including Allstate, regarding the applicable
building codes. On September 29, 1994, Allstate revised its gross provision
for Northridge losses to $1.425 billion ($926.3 million after-tax, an
increase of $211.3 million after-tax from its previous provision),
principally due to the uncovering of additional hidden damage, continuing
multiple aftershocks, continuing rising repair costs and continuing new
claims filed. On January 17, 1995, Allstate increased its Northridge gross
provision to $1.625 billion ($1.06 billion after-tax, an increase of $130
million after-tax), principally due to additional damage caused by
continuing shifting and compacting of the soil as a result of ongoing
seismic activity. Shortly after the earthquake and throughout the year,
industry estimates of the insured loss increased significantly from an
initial estimate of $1-2 billion in January 1994 to $9.5 billion in
December 1994 (A.M. Best). The establishment of reserves is an inherently
uncertain process, and there can be no assurance that ultimate losses with
respect to the Northridge earthquake will not exceed recorded reserves in
light of the substantial number of unsettled claims (approximately 6,300 at
January 31, 1995, out of approximately 45,000 reported claims), the
possibility of additional seismic activity, the effect (if any) of recent
California flooding and the possibility of additional hidden damage.
However, management believes the possibility of additional material loss is
remote. See ``Selected 1994 Operating Results'' below.
Allstate and Subsidiary Selected Financial Data
The following table summarizes certain selected consolidated financial
data. The information set forth below should be read in conjunction with
The Allstate Corporation and Subsidiary Consolidated Financial Statements
and Notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Allstate's Annual Report
on Form 10-K for the year ended December 31, 1993, and in Allstate's
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1994, which are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
(millions, except per
common share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results
Insurance premiums and
contract charges earned $13,315.9 $12,975.1 $17,402.3 $16,865.5 $16,343.9 $15,446.6 $14,344.5
Investment income, less
investment expense 2,531.3 2,482.7 3,323.7 3,200.5 3,001.4 2,571.3 2,235.2
Realized capital gains 186.9 205.2 220.3 162.1 4.9 181.2 223.4
Total revenues 16,034.1 15,663.0 20,946.3 20,228.1 19,350.2 18,199.1 16,803.1
Property-liability
insurance claims and
claims expense 11,142.5 9,585.1 12,922.5 15,205.1 12,518.8 12,198.8 10,873.6
Life insurance policy
benefits 1,526.2 1,567.1 2,102.5 2,153.8 2,121.6 1,827.2 1,653.7
Policy acquisition
costs 2,395.9 2,449.3 3,279.2 3,154.1 3,072.1 2,870.3 2,678.8
Other operating costs
and expense 842.4 875.6 1,184.5 1,140.4 1,098.6 1,001.8 913.3
Interest expense 44.6 64.0 81.6 - - - -
Total costs and
expenses 15,951.6 14,541.1 19,570.3 21,653.4 18,811.1 17,898.1 16,119.4
Income (loss) from
continuing operations
before income taxes
(benefit) 82.5 1,121.9 1,376.0 (1,425.3) 539.1 301.0 683.7
Income tax expense
(benefit)
Current operations (238.2) 79.4 74.5 (925.7) (183.4) (250.8) (131.5)
Fresh start adjustment - - - - - (139.0) -
Total income tax
expense (benefit) (238.2) 79.4 74.5 (925.7) (183.4) (389.8) (131.5)
Income (loss) from
continuing operations 320.7 1,042.5 1,301.5 (499.6) 722.5 690.8 815.2
Gain from discontinued
operations, net of tax - - - - - 10.5 -
Cumulative effect of
accounting changes - - - (325.6) - - -
Net income (loss) (1) $320.7 $1,042.5 $1,301.5 $(825.2) $722.5 $701.3 $815.2
Earnings (loss) per
share (2)
Income (loss) from
continuing operations $0.71 $2.42 $2.99 $(1.16)
Cumulative effect of
accounting changes - - - (0.75)
Net income (loss) $0.71 $2.42 $2.99 $(1.91)
Dividends declared per
share $0.54 $0.18 $0.36
Pretax catastrophe
losses(3) $1,680.2 $389.9 $545.9 $3,300.3 $505.7 $449.8 $468.7
Realized capital gains,
net of tax 121.5 133.4 143.2 107.0 3.2 119.6 147.5
Financial position (1)
Investments(4) $48,039.4 $45,914.8 $48,791.2 $41,730.8 $38,861.1 $33,509.9 $28,617.5
Total assets(4) 60,949.5 57,060.2 59,358.0 52,098.4 47,377.9 41,477.8 35,582.8
Claims reserves and
contractholder funds 39,551.0 36,846.7 37,436.4 35,881.6 31,661.0 27,177.6 22,325.9
Debt(5) 862.0 1,170.1 850.0 1,800.0 - - -
Total liabilities(5) 52,168.3 48,441.7 49,058.3 46,715.7 39,226.9 34,351.1 28,789.5
Shareholders' equity
(4)(5) 8,781.2 8,618.5 10,299.7 5,382.7 8,151.0 7,126.7 6,793.3
Book value per share(6) 19.53 19.15 22.89 17.04
Statutory surplus
Property-liability
companies 6,613.9 6,908.9 7,145.1 4,766.7 5,421.7 4,710.3 4,524.5
Life companies 1,233.2 1,144.7 1,185.4 1,002.1 900.3 800.4 594.8
Other operating data
Property-liability
claims and claims
expense ratio 89.1 78.7 79.2 96.6 82.7 85.4 82.8
Property-liability
combined ratio 112.1 102.3 103.0 120.8 107.5 109.9 107.5
Effect of catastrophe
losses on property-
liability combined
ratio(7) 13.4 3.2 3.3 21.0 3.3 3.1 3.6
Annual statutory
premiums written to
surplus ratio (U.S.
property-liability
operations) - - 2.3x 3.2x 2.7x 3.0x 2.9x
Ratio of earnings to
fixed charges(8) 1.7x 9.3x 8.8x - 7.0x 4.5x 9.8x
Total employees 47,871 49,404 48,889 51,515 54,144 57,232 55,789
Total Allstate agents 14,736 14,766 14,602 15,082 15,680 16,547 16,029
</TABLE>
<PAGE>
(1) Financial position for September 30, 1994 and December 31, 1993
reflects the adoption of new accounting for certain investments in
debt securities. Operating results and financial position for 1994,
1993 and 1992 reflect the adoption of new accounting rules for
postretirement and postemployment benefits.
(2) Pro forma for nine month period ended September 30, 1993 and for the
years ended December 31, 1993 and 1992.
(3) Catastrophe losses are reported net of reinsurance. A catastrophe is
defined by Allstate as an event that causes pretax losses, before
reinsurance, in excess of $250,000 and involves multiple first party
policyholders. Pretax catastrophe losses before reinsurance were $1.7
billion and $389.9 million for the nine-month periods ended September
30, 1994 and 1993, respectively, and $545.9 million, $3.5 billion
(including $2.7 billion relating to Hurricane Andrew), $574.9 million,
$492.0 million and $607.2 million for the years ended December 31,
1993, 1992, 1991, 1990 and 1989, respectively.
(4) As a result of a change in accounting for investments in debt
securities, total investments at September 30, 1994 decreased $64.3
million; total assets and shareholders' equity at September 30, 1994
each increased $33.4 million. Total investments, total assets and
shareholders' equity at December 31, 1993 increased $2,405.3 million,
$1,472.0 million and $1,472.0 million as a result of the accounting
change.
(5) Debt, total liabilities and shareholders' equity at December 31, 1992
reflect, on a pro forma basis, the results of capitalization of
Allstate with the contribution of all the common stock of AIC and the
assumption of $1.8 billion of debt as if the capitalization had
occurred as of December 31, 1992. Allstate was capitalized on March 8,
1993.
(6) Book value per share for 1992 is calculated as 1992 pro forma
shareholders' equity plus net proceeds of the stock offering of
$2,287.1 million divided by 450 million shares. Book value per share
for 1991 and prior years is not meaningful.
(7) Calculated by dividing pretax net catastrophe losses by total
property-liability earned premiums. Losses incurred in connection with
Hurricane Andrew contributed 15.9 points to the 1992 combined ratio.
(8) For purposes of this computation, earnings consists of income (loss)
from continuing operations before income taxes plus fixed charges.
Fixed charges consist of interest expense, amortization of financing
costs and that portion of rental expense that is representative of the
interest factor. Earnings for the year ended December 31, 1992 were
not sufficient to cover fixed charges by $1,425.3 million. The loss in
1992 resulted primarily from the impact of Hurricane Andrew which
caused pretax losses after reinsurance of $2.5 billion. Excluding
losses from Hurricane Andrew, the 1992 ratio was 12.7x.
For a discussion of liquidity, capital resources, results of operations,
and other information necessary to obtain an understanding of the
historical amounts presented in The Allstate Corporation and Subsidiary
Consolidated Statements of Income for the year ended December 31, 1993 and
for the nine months ended September 30, 1994, please refer to the
``Management's Discussion and Analysis'' in Allstate's Annual Report on
Form 10-K for the year ended December 31, 1993, and in Allstate's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1994,
respectively, incorporated herein by reference.
Selected 1994 Operating Results
On February 7, 1995, Allstate reported 1994 consolidated net income of $484
million, or $1.08 per share, compared with 1993 net income of $1.30
billion, or pro forma earnings per share of $2.99. For the fourth quarter
of 1994, Allstate reported consolidated net income of $163 million, or 37
cents per share, compared with $259 million, or 57 cents per share for the
same quarter in 1993. The 1994 annual and fourth-quarter periods include
estimated after-tax losses from the January, 1994 California earthquake of
$1.06 billion (without giving effect to an $81 million after-tax benefit
from the release of excess Hurricane Andrew catastrophe reserves) and $130
million, respectively. See ``1994 California Earthquake.'' Results for both
1994 periods were also impacted by a $99.9 million after-tax charge
resulting from an early retirement program that was accepted by about 600
employees and which will save Allstate approximately $35 million annually,
commencing in 1996.
For 1994, property-liability income was $312 million compared to $1.19
billion for 1993. Favorable trends in automobile claims, higher investment
income and a lower expense ratio were more than offset by losses from the
California earthquake. Life income for 1994 was $211 million compared to
$163 million for 1993. This improvement resulted from higher profit on
individual annuity products and lower operating expenses.
For the fourth quarter of 1994, property-liability income was $144 million
compared to $227 million for the same period in 1993. Favorable trends in
automobile claims, operating expense reductions and higher investment
income were more than offset by catastrophe losses and the charge for the
early retirement program. Life income for the fourth quarter of 1994 was
$29 million compared with $42 million for the same period in 1993 as a
higher volume of contract charges and lower operating expenses were offset
by the charge for the early retirement program.
Pro Forma Condensed Consolidated Financial Statements
The pro forma condensed consolidated statements of income for the nine
month period ended September 30, 1994 and the year ended December 31, 1993,
give effect to current assumptions relating to 1) the planned sale of 61.4%
of the outstanding common stock of PMI through the Stock Offering; and 2)
the proposed Distribution, including equal division of the leveraged
employee stock ownership plan of the Savings and Profit Sharing Fund of
Sears Employees between Allstate and the Company and payment by the Company
of the $450 million demand collateral note payable to AIC assuming the
transactions had occurred as of the beginning of the respective periods.
The pro forma condensed consolidated statements of operations do not
reflect investment income resulting from the proceeds of the Stock Offering
or payment by the Company of the demand collateral note. The pro forma
condensed consolidated statement of financial position gives effect to the
current assumptions relating to the above transactions assuming they
occurred on September 30, 1994.
The pro forma condensed consolidated financial statements have been derived
from, and should be read in conjunction with, the financial statements in
Allstate's Annual Report on Form 10-K for the year ended December 31, 1993
and Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1994. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the results of operations or
financial position that would have occurred had the transactions described
above been consummated on the dates assumed; nor is the pro forma
information intended to be indicative of Allstate's future results of
operations or financial position.
The Allstate Corporation Pro Forma Condensed Consolidated Statement of
Operations (Nine Month Period Ended September 30, 1994)
(in millions, except per share data)
Pro Forma Adjustments
Historical PMI Distribution Pro Forma
(Note 1) (Note 2)
Revenues
Property-liability
insurance premiums $12,508.2 $(220.7) $ $12,287.5
Life insurance premium
income and contract
charges 807.7 807.7
Investment income, less
investment expense 2,531.3 (42.1) 24.1 (A) 2,513.3
Realized capital gains
and losses 186.9 (2.0) 184.9
Total revenues 16,034.1 (264.8) 24.1 15,793.4
Costs and expenses
Property-liability
insurance claims and
claims expense 11,142.5 (107.1) 11,035.4
Life insurance policy
benefits 1,526.2 1,526.2
Policy acquisition
costs 2,395.9 (50.4) (5.1)(A) 2,340.4
Other operating costs
and expenses 842.4 (35.0) (4.0)(A) 803.4
Interest expense (Note 3) 44.6 7.9 (A) 52.5
Total costs and
expenses 15,951.6 (192.5) (1.2) 15,757.9
Income from operations
before income taxes and
equity in net income of
unconsolidated companies 82.5 (72.3) 25.3 35.5
Income tax expense
(benefit) (Note 4) (238.2) (13.1) 8.9 (A) (242.4)
Equity in net income of
unconsolidated companies
(Note 5) - 22.8 22.8
Net income $320.7 $(36.4) $16.4 $300.7
Net income per share
(Note 6) $0.71 $(.08) $.04 $0.67
Weighted average shares
outstanding 449.9 449.9 449.9 449.9
See Notes to Pro Forma Condensed Consolidated Financial Statements.
The Allstate Corporation Pro Forma Condensed Consolidated Statement of
Operations (Year Ended December 31, 1993)
(in millions, except per share data)
Pro Forma Adjustments
Historical PMI Distribution Pro Forma
(Note 1) (Note 2)
Revenues
Property-liability
insurance premiums $16,323.4 $(284.9) $ $16,038.5
Life insurance premium
income and contract
charges 1,078.9 1,078.9
Investment income, less
investment expense 3,323.7 (54.1) 35.4 (A) 3,305.0
Realized capital gains
and losses 220.3 (7.2) 213.1
Total revenues 20,946.3 (346.2) 35.4 20,635.5
Costs and expenses
Property-liability
insurance claims and
claims expense 12,922.5 (146.0) 12,776.5
Life insurance policy
benefits 2,102.5 2,102.5
Policy acquisition costs 3,279.2 (61.8) (14.9)(A) 3,202.5
Other operating costs
and expenses 1,184.5 (42.2) (12.0)(A) 1,130.3
Interest expense (Note 3) 81.6 15.4 (A) 97.0
Total costs and
expenses 19,570.3 (250.0) (11.5) 19,308.8
Income from operations
before income taxes
and equity in net
income of unconsolidated
companies 1,376.0 (96.2) 46.9 1,326.7
Income tax expense
(Note 4) 74.5 (15.9) 16.4 (A) 75.0
Equity in net income of
unconsolidated companies
(Note 5) - 31.0 31.0
Net income $1,301.5 $(49.3) $30.5 $1,282.7
Net income per share
(Note 6) $2.99 $(.11) $.07 $2.95
Weighted average shares
outstanding 441.7 441.7 441.7 441.7
See Notes to Pro Forma Condensed Consolidated Financial Statements.
The Allstate Corporation Pro Forma Condensed Consolidated Statement of
Financial Position (September 30, 1994)
(in millions)
Pro Forma Adjustments
Historical PMI Distribution Pro Forma
(Note 1) (Note 2)
Assets
Investments $48,039.4 $(506.5) $(349.8)(A) $47,633.1
450.0 (B)
Premium installment
receivables 2,223.5 (37.5) 2,186.0
Deferred policy
acquisition costs 1,926.9 (26.3) 1,900.6
Reinsurance recoverables 1,883.9 (11.9) 1,872.0
Cash 112.3 (3.7) 108.6
Other 3,980.3 217.6 4,197.9
Separate Accounts 2,783.2 2,783.2
Total assets $60,949.5 $(368.3) $100.2 $60,681.4
Liabilities
Insurance reserves $28,014.8 $(315.9) $ $27,698.9
Contractholder funds 17,509.4 17,509.4
Other liabilities and
accrued expenses 3,008.8 (52.4) 2,956.4
Debt 862.0 862.0
Separate Accounts 2,773.3 2,773.3
Total liabilities 52,168.3 (368.3) 51,800.0
Shareholders' Equity 8,781.2 (349.8)(A) 8,881.4
450.0 (B)
Total liabilities
and shareholders'
equity $60,949.5 $(368.3) $100.2 $60,681.4
See Notes to Pro Forma Condensed Consolidated Financial Statements.
Notes to Pro Forma Condensed Consolidated Financial Statements
Note 1 To reflect the impact of the planned sale by Allstate of 61.4% of
the ownership of PMI in the Stock Offering at a share price
assumed to result in net proceeds equal to book value at
September 30, 1994. Any variation in the ultimate share price
from that assumed will result in a one-time gain or loss on the
transaction.
The pro forma adjustments to net income reflected in the pro
forma condensed consolidated statements of operations differ from
the amounts reflected in PMI's financial statements for the
respective periods primarily because of timing differences in the
recognition of future losses related to PMI's discontinued
mortgage pool insurance segment. PMI recorded the future losses
as a premium deficiency in 1993 when it determined that the
losses on its pool insurance business segment were likely to
exceed the future premiums from this segment. Allstate's mortgage
insurance segment included PMI's primary mortgage insurance
business for purposes of measuring a premium deficiency, and,
when such business was included there was no resulting premium
deficiency. Accordingly, Allstate did not record a premium
deficiency, but rather recorded such losses as they were incurred
in 1994.
Note 2 To give effect to the current assumptions relating to the
proposed Distribution.
(A) To reflect equal division of the leveraged employee
stock ownership plan of the Savings and Profit Sharing Fund of
Sears Employees between Allstate and the Company. The pro forma
adjustments include investment income at 9.2% on the note from
the Allstate Plan, reduction of Allstate's profit sharing expense
due to appreciation on the unallocated shares held by the ESOP,
and a decrease in investments for the amount paid to the Company
for the unallocated shares.
(B) To reflect payment by the Company of the $450 million
demand collateral note payable to AIC.
Note 3 Concurrently with the proposed Stock Offering, Allstate will
offer a new issue of Exchangeable Notes due 1998. No pro forma
adjustment has been reflected for the issuance of the
Exchangeable Notes because the price range and interest rate for
such notes have not been established. The anticipated annual
impact of increased after-tax interest costs is not expected to
exceed $.04 per share.
Note 4 Allstate has not established a valuation reserve relating to its
deferred tax asset because it considers it more likely than not
that it will earn sufficient taxable income in the future to
realize such deferred tax assets, including sources of taxable
income derived from the use of tax planning strategies.
While Allstate's effective tax rate is expected to increase after
the Distribution, it is not expected to vary materially from the
pro forma effective rate.
The Distribution may necessitate a change in the investment
strategy of Allstate for tax planning purposes. Specifically,
Allstate may vary its mix of holdings of taxable and tax-exempt
securities. The extent of any shift in the portfolio will be
dependent on underwriting performance and investment yields.
While such a shift will tend to increase the effective tax rate,
it will also increase investment income, as taxable securities
generally have higher pre tax yields than tax-exempt securities.
The net impact of any change in strategy may reduce the after-tax
yield on the portfolio. However, any change in strategy is not
expected to have a material effect on results of operations,
liquidity or capital resources.
Note 5 When the exchange of the exchangeable notes takes place in 1998,
Allstate will no longer record equity in net income of PMI.
Note 6 Assuming full exercise of the underwriters' overallotment options
in the Stock Offering, the potential impact on net income per
share would be a further decrease of $.01 for the nine month
period ended September 30, 1994 and $.02 for the year ended
December 31, 1993.
Additional Information
Allstate is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the SEC (collectively, the ``SEC Reports''). For further
information pertaining to Allstate (including financial statements and
other financial information), the Allstate Common Stock and related
matters, the Company shareholders are urged to read Allstate's SEC Reports.
The SEC Reports can be inspected and copied at the locations specified
under the caption ``Available Information''.
Incorporation by Reference
The following documents or portions thereof filed by Allstate with the SEC
are incorporated by reference herein:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1994.
3. Current Reports on Form 8-K dated February 1, March 21, April 20, and
September 29, 1994, and January 17, January 18 and February 7, 1995.
4. The description of Allstate Common Stock contained in the final
prospectus dated June 2, 1993 as filed pursuant to Rule 424(b) under
the Securities Act of 1933, included in Allstate's Registration
Statement on Form S-1 (File No. 33-59676) under the caption
``Description of Capital Stock.''
Allstate will provide without charge to each person to whom a copy of this
Proxy Statement is delivered, on the written or oral request of any such
person, by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any or all of the
foregoing documents incorporated herein by reference (other than any
exhibits to such documents which are not specifically incorporated herein
or into such documents by reference). Requests should be directed to:
The Allstate Corporation
Investor Relations
Allstate Plaza South
3075 Sanders Road
Northbrook, IL 60062-7127
or (708) 402-2800
All documents filed by Allstate with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the date of the Special Meeting and any adjournment thereof shall be deemed
to be incorporated by reference herein.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein (or in any other subsequently
filed document that also is incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall be
deemed to constitute a part hereof except as so modified or superseded.
APPENDIX B: Opinion of Goldman, Sachs & Co.
(LOGO)
February 21, 1995
Sears, Roebuck and Co.
Sears Tower
233 South Wacker Drive
Chicago, IL 60684
Gentlemen and Mesdames:
We are acting as financial advisors to Sears, Roebuck and Co. (``Sears'')
in connection with the proposed distribution of all of The Allstate
Corporation (``Allstate'') common stock currently held by Sears (``Allstate
Common Stock'') to the holders of Sears' common stock (``Sears Common
Stock''), on a pro rata basis, as more fully described in the Sears Proxy
Statement dated February 21, 1995 (the ``Spin-Off''). You have requested
our opinion as to certain financial aspects of the Spin-Off.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Sears and Allstate, having performed ongoing investment
banking services for Sears, Allstate and their subsidiaries for many years,
including acting as financial advisor to Sears in connection with the
corporate repositioning announced September 29, 1992 which contemplated the
initial public offering of approximately 20% of the common stock of
Allstate. We served as lead manager of Allstate's initial public offering
of common stock and debt securities in June 1993.
In arriving at our opinion, we have, among other things: (i) conducted
discussions with members of the current senior management of Sears and
Allstate with respect to the historical and current businesses of Sears and
Allstate and the future prospects of Sears and Allstate, the anticipated
effects of the Spin-Off on Sears' and Allstate's initial and projected
capital structures, cash flow and results of operations, and the plans and
programs for the financing of current and projected capital and operating
requirements of Sears and Allstate, (ii) analyzed certain historical
business and financial information for Sears and Allstate, (iii) reviewed
certain projections provided by Sears and Allstate for Sears and Allstate
for the years 1994 through 1998, (iv) reviewed public information relating
to Sears and Allstate including public financial statements, and reviewed
certain rating agency presentations, (v) reviewed public information with
respect to certain other companies in lines of businesses we believe to be
generally comparable to certain of the businesses conducted by Sears and
Allstate, (vi) considered the terms of other recent spin-off transactions,
and (vii) conducted such other studies, analyses and investigations as we
deemed appropriate.
We have relied upon the accuracy and completeness of the historical and
forecasted financial and other information regarding Sears and Allstate and
their business segments and subsidiaries provided to us by Sears and its
subsidiaries and have not undertaken any independent verification of any
such information. We have assumed and have not independently verified the
reasonableness of the projections provided by management in connection with
our analysis of Sears and Allstate. We have not made any appraisals nor
have we been furnished with independent appraisals of any of the assets of
Sears or Allstate. At your instruction we have assumed projections will be
realized in amounts shown at times stated. Further, our opinion is based on
economic, monetary and market conditions existing on the date of this
opinion, and we have not undertaken to reaffirm or revise or supplement
this opinion based upon any events occurring after the date hereof.
In June 1993, Allstate offered 89,500,000 shares of its common stock to the
public in concurrent U.S. and international public offerings (the
``Offerings''). Goldman, Sachs & Co. and Goldman Sachs International
Limited acted as lead manager in the Offerings. Prior to the Offerings,
Allstate was a wholly-owned subsidiary of Sears. After the completion of
the proposed Spin-Off, Sears will no longer own any Allstate Common Stock.
We have assumed with your consent that receipt of the Allstate Common Stock
not currently publicly held (80.2% of outstanding Allstate Common Stock)
will be tax-free for federal income tax purposes to the stockholders of
Sears and that Sears will not recognize income, gain or loss as a result of
the Spin-Off.
Based upon and subject to the foregoing and in light of the fact that the
Spin-off will be on a pro rata basis to each of the holders of Sears Common
Stock, it is our opinion that the Spin-off is fair to such holders.
Very truly yours,
(signed)
Goldman, Sachs & Co.
APPENDIX C: Opinion of Morgan Stanley & Co. Incorporated
(LOGO)
February 21, 1995
Board of Directors
Sears, Roebuck and Co.
Sears Tower
Chicago, Illinois 60684
Dear Sirs and Mesdames:
We understand that Sears, Roebuck and Co. (``Sears'') is proposing to
distribute the 80.2% of the common stock of The Allstate Corporation
(``Allstate'') that Sears owns, on a pro rata basis, to the holders of
Sears' common stock (the ``Spin-Off'').
You have asked for our opinion as of the date hereof whether the proposed
Spin-Off is fair, from a financial point of view, to the holders of Sears'
common stock.
For purposes of this opinion, we have:
(i) analyzed certain publicly available financial statements and
other information relating to Sears and Allstate;
(ii) analyzed certain internal financial statements and other
financial operating data concerning Sears and Allstate prepared
by their respective managements and given to us by you;
(iii) analyzed certain financial budgets and forecasts prepared by the
respective managements of Sears and Allstate and given to us by
you;
(iv) compared the financial performance of Allstate with that of
certain other companies with publicly traded securities which we
deemed to be comparable to Allstate;
(v) compared the financial performance of Sears (excluding Allstate)
with that of certain other companies with publicly traded
securities which we deemed to be comparable to Sears (excluding
Allstate);
(vi) discussed past and current operations and financial condition and
the prospects of Sears with senior executives of Sears and of
Allstate with senior executives of Allstate;
(vii) participated in discussions among representatives of Sears,
Allstate and their legal advisors;
(viii) performed such other analyses as we have deemed appropriate; and
(ix) reviewed the proxy statement for the special meeting of
shareholders of Sears relating to the Spin-Off (the ``Proxy
Statement'').
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the
purposes of this opinion. With respect to the financial budgets and
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
future financial performance of Sears and Allstate. We have not made any
independent valuation or appraisal of the assets or liabilities, contingent
or otherwise, of Sears or Allstate, nor have we been furnished with any
such appraisals.
We have further assumed that, prior to the Spin-Off, Sears will receive a
ruling from the Internal Revenue Service or an opinion of nationally
recognized counsel to the effect that the Spin-Off will not be a taxable
transaction to Sears, Allstate or their respective shareholders under
federal income tax laws (except to the extent of any cash distributed in
lieu of fractional shares of Allstate). We have further assumed the
correctness of the conclusions set forth in such opinion or ruling, as
applicable. We have further assumed that the Spin-Off will comply with (i)
Section 510 of the New York Business Corporation Law and (ii) all other
applicable laws, except for any noncompliances with such other applicable
laws that would not have a material adverse effect on Sears or Allstate. In
addition, if dissenters' rights are available under New York law in
connection with the Spin-Off, we have assumed for purposes of our opinion
that, as of the time of the Spin-Off, the holders of not more than 1% of
the outstanding shares of Sears' common stock will have taken requisite
action to preserve dissenters' rights with respect to their shares.
In rendering our opinion, we have, with your consent, not considered the
effect of any terms or arrangements relating to the Spin-Off (other than as
set forth in the first paragraph of this letter or as described in the
Proxy Statement), including the terms of any distribution, tax or other
agreement or arrangement, or any amendment or modification to any existing
such agreement or arrangement, except that you have informed us and we have
assumed that (i) the existing tax consolidation between Sears and Allstate
will be terminated as of the date of the Spin-Off and (ii) the effects of
such termination will be as represented to us by the respective managements
of Sears and Allstate. We have not solicited any proposals for the
acquisition of stock or assets of Allstate or made any determination as to
whether any such proposals could be obtained, if solicited.
Our opinion is rendered on the basis of securities markets, economic and
general business and financial conditions prevailing as of the date hereof
and the conditions and prospects, financial and otherwise, of Sears and
Allstate as they are represented to us as of the date hereof or as they
were reflected in the information and documents reviewed by us. Our opinion
assumes that the Spin-Off is completed on the basis set forth in the first
paragraph of this letter and that the shares of Sears and Allstate are
fully and widely distributed among investors and are subject only to normal
trading activity. We note that trading in the common stock of Sears and
Allstate for a period commencing with the public announcement of the
Spin-Off and continuing for a time following completion of the Spin-Off may
involve a redistribution of such securities among Sears' and Allstate's
shareholders and other investors and, accordingly, during such period, such
securities may trade at prices below both those at which they traded prior
to the public announcement of the Spin-Off and those at which they would
trade on a fully distributed basis after the Spin-Off. The estimation of
market trading prices of newly distributed securities is subject to
uncertainties and contingencies, all of which are difficult to predict and
beyond the control of the firm making such estimates. In addition, the
market prices of such securities will fluctuate with changes in market
conditions, the conditions and prospects, financial and otherwise, of Sears
and Allstate, and other factors which generally influence the prices of
securities. In rendering our opinion, we are not opining as to the price at
which the common stock of Sears or Allstate will trade after the Spin-Off
is effected.
We have acted as financial advisor to the Board of Directors of Sears in
connection with the Spin-Off and will receive a fee for our services. In
the past, Morgan Stanley Group Inc. and its affiliates have provided
investment banking and financial advisory services to both Sears and
Allstate.
Our advisory services and the opinion expressed herein are provided solely
for the benefit of Sears' Board of Directors in evaluating the Spin-Off and
are not on behalf of, and are not intended to confer any rights or remedies
upon, Sears, Allstate, any shareholder of Sears or Allstate or any person
other than Sears' Board of Directors.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the proposed Spin-Off is fair, from a financial point of
view, to the holders of Sears' common stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: (signed)
William H. Strong
Managing Director
APPENDIX D: Sections 910 and 623 of the New York Business Corporation Law
(section) 910. Right of shareholder to receive payment for shares upon
merger or consolidation, or sale, lease, exchange or other disposition of
assets, or share exchange. (a) A shareholder of a domestic corporation
shall, subject to and by complying with section 623 (Procedure to enforce
shareholder's right to receive payment for shares), have the right to
receive payment of the fair value of his shares and the other rights and
benefits provided by such section, in the following cases:
(1) Any shareholder entitled to vote who does not assent to the
taking of an action specified in subparagraphs (A), (B) and (C).
(A) Any plan of merger or consolidation to which the
corporation is a party; except that the right to receive payment
of the fair value of his shares shall not be available:
(i) To a shareholder of the parent corporation in a
merger authorized by section 905 (Merger of parent and
subsidiary corporations), or paragraph (c) of section 907
(Merger or consolidation of domestic and foreign
corporations); and
(ii) To a shareholder of the surviving corporation in a
merger authorized by this article, other than a merger
specified in a subparagraph (i), unless such merger effects
one or more of the changes specified in subparagraph (b)(6)
of section 806 (Provisions as to certain proceedings) in the
rights of the shares held by such shareholder.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires
shareholder approval under section 909 (Sale, lease exchange or
other disposition of assets) other than a transaction wholly for
cash where the shareholders' approval thereof is conditioned upon
the dissolution of the corporation and the distribution of
substantially all its net assets to the shareholders in
accordance with their respective interests within one year after
the date of such transaction.
(C) Any share exchange authorized by section 913 in which
the corporation is participating as a subject corporation; except
that the right to receive payment of the fair value of his shares
shall not be available to a shareholder whose shares have not
been acquired in the exchange.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a
share exchange authorized by paragraph (g) of section 913, who files
with the corporation a written notice of election to dissent as
provided in paragraph (c) of section 623.
(section) 623. Procedure to enforce shareholder's right to receive payment
for shares. (a) A shareholder intending to enforce his right under a
section of this chapter to receive payment for his shares if the proposed
corporate action referred to therein is taken shall file with the
corporation, before the meeting of shareholders at which the action is
submitted to a vote, or at such meeting but before the vote, written
objection to the action. The objection shall include a notice of his
election to dissent, his name and residence address, the number and classes
of shares as to which he dissents and a demand for payment of the fair
value of his shares if the action is taken. Such objection is not required
from any shareholder to whom the corporation did not give notice of such
meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent
without a meeting was obtained from the requisite shareholders, the
corporation shall give written notice of such authorization or consent by
registered mail to each shareholder who filed written objection or from
whom written objection was not required, excepting any shareholder who
voted for or consented in writing to the proposed action and who thereby is
deemed to have elected not to enforce his right to receive payment for his
shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as
to which he dissents and a demand for payment of the fair value of his
shares. Any shareholder who elects to dissent from a merger under Section
905 (Merger of subsidiary corporation) or paragraph (c) of Section 907
(Merger or consolidation of domestic and foreign corporations) or from a
share exchange under paragraph (g) of Section 913 (Share exchanges) shall
file a written notice of such election to dissent within twenty days after
the giving to him of a copy of the plan of merger or exchange or an outline
of the material features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares,
as to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to
which such nominee or fiduciary has a right to dissent, held of record by
such nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be
paid the fair value of his shares and any other rights under this section.
A notice of election may be withdrawn by the shareholder at any time prior
to his acceptance in writing of an offer made by the corporation, as
provided in paragraph (g), but in no case later than sixty days from the
date of consummation of the corporate action except that if the corporation
fails to make a timely offer, as provided in paragraph (g), the time for
withdrawing a notice of election shall be extended until sixty days from
the date an offer is made. Upon expiration of such time, withdrawal of a
notice of election shall require the written consent of the corporation. In
order to be effective, withdrawal of a notice of election must be
accompanied by the return to the corporation of any advance payment made to
the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine
that the shareholder is not entitled to receive payment for his shares, or
the shareholder shall otherwise lose his dissenters rights, he shall not
have the right to receive payment for his shares and he shall be reinstated
to all his rights as a shareholder as of the consummation of the corporate
action, including any intervening preemptive rights and the right to
payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash
has been completed, in lieu thereof, at the election of the corporation,
the fair value thereof in cash as determined by the board as of the time of
such expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates
shall submit the certificates representing his shares to the corporation,
or to its transfer agent, which shall forthwith note conspicuously thereon
that a notice of election has been filed and shall return the certificates
to the shareholder or other person who submitted them on his behalf. Any
shareholder of shares represented by certificates who fails to submit his
certificates for such notation as herein specified shall, at the option of
the corporation exercised by written notice to him within forty-five days
from the date of filing of such notice of election to dissent, lose his
dissenter's rights unless a court, for good cause shown, shall otherwise
direct. Upon transfer of a certificate bearing such notation, each new
certificate issued therefor shall bear a similar notation together with the
name of the original dissenting holder of the shares and a transferee shall
acquire no rights in the corporation except those which the original
dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever
is later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer
by registered mail to each shareholder who has filed such notice of
election to pay for his shares at a specified price which the corporation
considers to be their fair value. Such offer shall be accompanied by a
statement setting forth the aggregate number of shares with respect to
which notices of election to dissent have been received and the aggregate
number of holders of such shares. If the corporate action has been
consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his
shares to the corporation, as provided in paragraph (f), of an amount equal
to eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a statement that
advance payment to him of an amount equal to eighty percent of the amount
of such offer will be made by the corporation promptly upon submission of
his certificate. If the corporate action has not been consummated at the
time of the making of the offer, such advance payment or statement as to
advance payment shall be sent to each shareholder entitled thereto
forthwith upon consummation of the corporate action. Every advance payment
or statement as to advance payment shall include advice to the shareholder
to the effect that acceptance of such payment does not constitute a waiver
of any dissenters' rights. If the corporate action has not been consummated
upon the expiration of the ninety day period after the shareholders'
authorization date, the offer may be conditioned upon the consummation of
such action. Such offer shall be made at the same price per share to all
dissenting shareholders of the same class, or if divided into series, of
the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or,
if the corporation was not in existence throughout such twelve month
period, for the portion thereof during which it was in existence.
Notwithstanding the foregoing, the corporation shall not be required to
furnish a balance sheet or profit and loss statement or statements to any
shareholder to whom such balance sheet or profit and loss statement or
statements were previously furnished, nor if in connection with obtaining
the shareholders' authorization for or consent to the proposed corporate
action the shareholders were furnished with a proxy or information
statement, which included financial statements, pursuant to Regulation 14A
or Regulation 14C of the United States Securities and Exchange Commission.
If within thirty days after the making of such offer, the corporation
making the offer and any shareholder agree upon the price to be paid for
his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such
shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the
offer and any dissenting shareholder or shareholders fail to agree with it
within the period of thirty days thereafter upon the price to be paid for
their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme court in the
judicial district in which the office of the corporation is located to
determine the rights of dissenting shareholders and to fix the fair
value of their shares. If, in the case of merger or consolidation, the
surviving or new corporation is a foreign corporation without an
office in this state, such proceeding shall be brought in the county
where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding within
such period of twenty days, any dissenting shareholder may institute
such proceeding for the same purpose not later than thirty days after
the expiration of such twenty day period. If such proceeding is not
instituted within such thirty day period, all dissenter's rights shall
be lost unless the supreme court, for good cause shown, shall
otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided
in paragraph (g), have agreed with the corporation upon the price to
be paid for their shares, shall be made parties to such proceeding,
which shall have the effect of an action quasi in rem against their
shares. The corporation shall serve a copy of the petition in such
proceeding upon each dissenting shareholder who is a resident of this
state in the manner provided by law for the service of a summons, and
upon each nonresident dissenting shareholder either by registered mail
and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make
such determination, is entitled to receive payment for his shares. If
the corporation does not request any such determination or if the
court finds that any dissenting shareholder is so entitled, it shall
proceed to fix the value of the shares, which, for the purposes of
this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the
fair value of the shares, the court shall consider the nature of the
transaction giving rise to the shareholders right to receive payment
for shares and its effects on the corporation and its shareholders,
the concepts and methods then customary in the relevant securities and
financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall
determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the
corporation or by any shareholder who is a party to the proceeding,
the court may, in its discretion, permit pretrial disclosure,
including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for
use at the trial in the proceeding and notwithstanding subdivision (d)
of section 3101 of the civil practice laws and rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party
to the proceeding and is entitled thereto for the value of his shares
so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the
corporate action was consummated to the date of payment. In
determining the rate of interest, the court shall consider all
relevant factors, including the rate of interest which the corporation
would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to
accept the corporate offer of payment for his shares was arbitrary,
vexatious or otherwise not in good faith, no interest shall be allowed
to him.
(7) Each party to such proceeding shall bear it own costs and
expenses, including the fees and expenses of its counsel and of any
experts employed by it. Notwithstanding the foregoing, the court may,
in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by the corporation against any or all of
the dissenting shareholders who are parties to the proceeding,
including any who have withdrawn their notices of election as provided
in paragraph (e), if the court finds that their refusal to accept the
corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or
any part of the costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair
value of the shares as determined materially exceeds the amount which
the corporation offered to pay; (B) that no offer or required advance
payment was made by the corporation; (C) that the corporation failed
to institute the special proceeding within the period specified
therefor; or (D) that the action of the corporation in complying with
its obligations as provided in this section was arbitrary, vexatious
or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or
the percentage, or both, by which the fair value of the shares as
determined exceeds the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder
the amount found to be due him, upon surrender of the certificates for
any such shares represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in
this section, shall become treasury shares or be cancelled as provided in
section 515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment
would make it insolvent. In such event, the dissenting shareholder shall,
at his option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and,
if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting
shareholders, and if it is not liquidated, retain his right to be paid
for his shares, which right the corporation shall be obliged to
satisfy when the restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation
within thirty days after the corporation has given him written notice
that payment for his shares cannot be made because of the restrictions
of this paragraph. If the dissenting shareholder fails to exercise
such option as provided, the corporation shall exercise the option by
written notice given to him within twenty days after the expiration of
such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement
by such shareholder of any other right to which he might otherwise be
entitled by virtue of share ownership, except as provided in paragraph (e),
and except that this section shall not exclude the right of such
shareholder to bring or maintain an appropriate action to obtain relief on
the ground that such corporate action will be or is unlawful or fraudulent
as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be
given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
SEARS, ROEBUCK AND CO.
TABLE OF CONTENTS
Page
PROXY STATEMENT SUMMARY 1
The Special Meeting 1
The Distribution 1
Selected 1994 Operating Results 3
Allstate 4
Sears, Roebuck and Co. Historical Summary
Financial Information 5
Sears, Roebuck and Co. Pro Forma Summary
Financial Information 6
THE SPECIAL MEETING 6
Purpose of the Special Meeting 7
Voting Rights and Proxy Information 7
Appraisal Rights 8
CERTAIN CONSIDERATIONS 9
THE DISTRIBUTION PROPOSAL 11
Background and Reasons for the Distribution 11
Factors Considered by the Board 11
Opinions of Financial Advisors 12
Manner of Effecting the Distribution 15
Determination of the Distribution 15
Federal Income Tax Aspects of the Distribution 16
Listing and Trading of Allstate Common Stock 16
Listing and Trading of Sears Common Shares 17
Conditions; Termination 17
Effect of the Distribution on PERCS 17
Effect of the Distribution on Employee Stock
Options and Restricted Shares 17
Agreements with Executive Officers 18
Regulatory Approvals 18
Accounting Treatment 19
RELATIONSHIPS BETWEEN THE COMPANY AND ALLSTATE 19
Business Relationships 19
Agreements Relating to the Distribution 20
Common Directors 23
SEARS, ROEBUCK AND CO. HISTORICAL
SUMMARY FINANCIAL INFORMATION 24
SEARS, ROEBUCK AND CO. PRO FORMA
SUMMARY FINANCIAL INFORMATION 25
SEARS, ROEBUCK AND CO. PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE CONTINUING
BUSINESSES OF THE COMPANY 31
BUSINESS OF THE COMPANY AFTER THE DISTRIBUTION 31
MANAGEMENT OF THE COMPANY AFTER THE DISTRIBUTION 34
STOCK OWNERSHIP INFORMATION 35
Security Ownership of Certain Beneficial Owners 35
Security Ownership of Directors and Executive
Officers 36
MARKET INFORMATION CONCERNING SEARS COMMON SHARES
AND ALLSTATE COMMON STOCK 37
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS OF THE COMPANY AND ALLSTATE 37
COMPARISON OF RIGHTS OF SHAREHOLDERS OF THE
COMPANY AND ALLSTATE 38
Differences in Corporation Laws 38
Significant Differences in Corporate Charters
and By-Laws 39
Insurance Regulations Concerning Change or
Acquisition of Control 41
INDEPENDENT AUDITORS 42
SHAREHOLDER PROPOSALS 42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 42
AVAILABLE INFORMATION 42
APPENDIX A: Allstate Appendix A-1
Business of Allstate A-1
Recent Developments A-1
Certain Factors Affecting The Allstate
Corporation A-2
1994 California Earthquake A-2
Allstate and Subsidiary Selected
Financial Data A-3
Selected 1994 Operating Results A-4
Pro Forma Condensed Consolidated
Financial Statements A-5
Additional Information A-8
Incorporation by Reference A-8
APPENDIX B: Opinion of Goldman, Sachs & Co. B-1
APPENDIX C: Opinion of Morgan Stanley & Co.
Incorporated C-1
APPENDIX D: Sections 910 and 623 of the
New York Business Corporation Law D-1
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